THE central bank warned that the prolonged presence of ultra-low interest rates in some economies is storing up financial stability risks and causing spillover effects for other countries.

“Low interest rates implemented in developed economies haven’t reached the desired effects,” as inflation levels have stayed below target for a long time, the People’s Bank of China said in its quarterly monetary policy report.

It said low interest rates, which can hardly change structural issues in those economies, have worsened banks profit and caused credit tightening effects in some circumstances.

The spillover effects of low interest rate policy in developed economies have become more obvious, “causing potential risks in cross border capital flow and bigger forex risks,” the central bank said.

The central bank reiterated in the report that it would make its own “prudent” monetary policy stance more “flexible, appropriate and targeted” as the domestic recovery gathers pace.

Policymakers have signaled that they intend to seek an “exit” from the more generous liquidity provision made during the virus crisis.

Low interest rates could accelerate debt growth and overcapacity problems in the corporate sector, encourage financial institutions to leverage up aggressively and make the financial system more vulnerable, according to the report.

“We will comprehensively use and innovate a variety of monetary policy tools, and keep liquidity reasonably ample,” the central bank said.

The central bank will base the strength and pace of its monetary policy on the success of virus control efforts and the economic and financial situation, it said.

Central bank policy adviser Ma Jun said in remarks published last week that the PBOC does not need to step up its policy easing as an economic recovery is well under way, and further stimulus could stoke property and stock bubbles.(SD-Agencies)