Lars Rohde: Denmark's experiences with low interest rates

Speech by Mr Lars Rohde, Governor of the National Bank of Denmark, at the National Asset-Liability Management Europe, Copenhagen, 1 March 2018.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Interest rates - Low for long

Thank you very much for the opportunity to speak here today. It is my great pleasure to be able to share with you some of Denmark's experiences with low interest rates, as well as my views on future issues in monetary policy.

Exceptionally easy monetary policy has played a fundamental role in supporting the economic recovery over the past decade. Now, a continued and more robust global upswing is expected to be accompanied by normalisation of interest rates. This development is welcome and has been a long time coming. But the withdrawal from monetary stimulus will also reveal whether vulnerabilities have accumulated in some parts of the financial sector. Further, it will show just how robust our economies are to higher financing costs.

In the following, I will focus on three key messages:

First, I will talk about global growth. My main point here is that while the long-awaited global upturn is gaining strength, growth is not likely to attain pre-crisis levels.

Second, I will discuss the effects of low rates and unconventional monetary policy. Central bank balance sheets have expanded substantially. In Denmark, banks' earnings have been under pressure, although the impact on overall profitability has been limited.

And finally, the pace and timing of policy normalisation will require careful calibration. International spillovers from major central banks are inevitable, especially for small open economies. The final implementation of regulatory reforms and an effective macroprudential policy framework will be essential to containing financial stability risks.