Klaas Knot: Macroprudential modesty

Introductory remarks by Mr Klaas Knot, President of the Netherlands Bank, at the 82nd Plenary Meeting of the Group of Thirty, Federal Reserve Bank of New York, New York, City, 6 December 2019.

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

At the G30 meeting, hosted by the Federal Reserve Bank of New York, a panel session was held on 'The Future of Macroeconomic Policies'. Klaas Knot was one of the panelists. In his opening statement he discussed the role of macroprudential policies in addressing financial vulnerabilities. He stressed the need to be realistic in our expectations on what macroprudential policies can deliver under the current circumstances. The macroprudential toolkit, Mr. Knot said, is limited in scope and impact to mitigate systemic risks. He stressed that financial stability has to be a relevant factor to take into account in the overall macroeconomic policy mix.

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Introduction

What a difference a year can make. In December 2018, the ECB decided to end its net purchases under the Asset Purchase Program and it was believed that 2019 would focus on steps towards monetary policy normalization.

Now, one year later, rates have been cut both in the US and in Europe and net asset purchases have restarted in Europe. The main theme in international discussions at the FSB and IMF is the prolonged nature of low interest rates. These discussions focus on the structural level of the natural interest rate and are reflected in terms as 'low-for-long' or even 'low forever'. The weakening of the economic outlook and shift in financial conditions have increased stability risks in the global financial system.