BIS: Monetary policy should lean against financial booms

    Central banks may have worsened the global financial crises by slashing policy rates in response to stock market crashes in 1987 and 2000, inflating a financial boom that ultimately collapsed years later, according to the Bank for International Settlements (BIS).
    To avoid a repeat, BIS is calling for a radical change in worldwide monetary and financial policy.
    Central banks should no longer just react to short-term fluctuations in economic output but take aim at the highly destructive force of the financial cycle as they ultimately move away from debt as the main engine of economic growth.
    Unlike business cycles, which tend to last from one to eight years, financial cycles are much more slow moving and can last 15-20 years, with debt in a myriad of guises slowly building up while property prices steadily inflate.
    Currently, the financial cycle is not on their radar screen of most central banks with the consequence that they often overreact to short-term changes in economic output and inflation, thereby generating bigger problems down the road, said the respected BIS in its annual report.
   By cutting interest rates over successive business and financial cycles and only slowly raising them afterwards, an asymmetrical bias is created, with the risk of entrenching instability in the economy, said Swiss-based BIS, known as the central banks’ bank.

UK Central Bank Sees Rise in Credit Card Limits

Credit card limits rose in the final three months of 2011, according to the latest Credit Conditions Survey from the Bank of England, the UK's central bank. This wasn't the only increase to appear in this Survey, which also pointed to the growth in the availability to households of unsecured credit in the final quarter of the year - growth which we can expect to see (a little) more of between now and March. The first quarter of 2012 should also see a slight increase in demand for 'other unsecured lending' (i.e. other than credit cards, where we can expect a drop).