Old and new challenges for 2016 and beyond: strengthening confidence by re-anchoring long-term expectations
Speech by Mr Luiz Awazu Pereira da Silva, Deputy General Manager of the BIS, at the Lamfalussy Lecture Series: Professor Lamfalussy Commemorative Conference, Budapest, 1 February 2016.
The global financial crisis challenged how we analyse and conduct economic policy. While we understand global financial cycles much better and managed to avoid a repeat of the Great Depression, we are still stuck in a volatile low-growth environment. One reason is a lack of "confidence" in a structural sense: markets still cannot firm up their expectations about what is a long-term sustainable growth rate, a reasonable return on savings and on how to price assets. Hence, they remain unanchored and volatile. We need to help re-anchor them first by showing a roadmap toward the gradual normalisation of monetary conditions. And we need also to go beyond that, and show the need to undertake the necessary "structural reforms" to make our socio-economic contracts more sustainable and resolve uncertainties about present and intergenerational resources allocation - uncertainties that increase risk premia and dampen growth perspectives. If we strengthen confidence and re-anchor long-term market expectations, we will help the financing of the real economy and contribute in the long term to a more TFP-based sustainable growth.