Why have long-term interest rates been so low? Is the global interest rate cycle beginning to turn?

Speech by Malcolm D Knight, General Manager of the BIS, at the National Bank of Slovakia, Bratislava, 12 May 2006.


Mr. Knight discusses the surprising decline in real long-term interest rates that has taken place in financial markets throughout the world since the mid-1990s, the recent rise in longer-term yields in financial markets, and the risks to the global economy and financial system that might materialize if yields were to rise markedly from their current levels. While there is no reason to believe that large financial institutions are poorly positioned to weather such a rise, it would likely impact negatively on household consumption, and residential construction and could lead to a significant and protracted retrenchment in final demand in a number of key economies. It could also be associated with a significant weakening of the real effective exchange rate of the US dollar.