The negative consequences of expansive monetary policies are getting more and more attention after Laurence Fink from BlackRock and Mario Draghi from the ECB, among others, have spoken up about the problems associated with this practice.
During the International Monetary Fund Spring Meeting, Mario Draghi spoke to CNBC about the fact that the low interest rate policy of the ECB and the quantitative easing program that kicked off recently has hit savers hard.
Savers hit by QE
Earlier this year, the ECB started buying government bonds in an attempt to boost liquidity in the region. Pension funds and insurance companies are definitely negatively affected by these low interest rates, Draghi explains.
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The ECB’s monetary policy is designed to guarantee price stability, which is the best service the organization can deliver to the economy, but also to consumers and savers. If another monetary policy is introduced, savers will ultimately be negatively affected.
Eurozone Interest Rates
The rates in the eurozone, but also in other regions like the UK and the US are at record lows. Low interest rates are interesting for people with mortgages, for example, but on the other hand it makes that savers end up with extremely low yields on their savings accounts.
Draghi’s remark came after Fink, founder and CEO of BlackRock, said that central banks have no idea of the huge pain they caused among insurance companies. He added that the expansive monetary policy in the eurozone has scared away European insurers to reinvest in Germany and Switzerland.
According to David Owen, chief European economist at Jefferies International, the low interest rates from the ECB has created a culture of risk in which investors feel forced to choose for high-risk/high-reward investments.