Baku, Azerbaijan, March 29
By Anvar Mammadov - Trend:
The risk of policy error resulting from monetary policy normalization worries in the long term, Saxo Bank told Trend on March 29.
Central banks are one of the main causes of shocks in the market, according to the bank analysts.
"Since 2008, markets have regularly swung between period of calm and shock. In roughly two out of three cases, the periods of shock has occurred due to central banks (adjustment in forward guidance, misinterpretation of central communication, uncertainty about inflation…)," Saxo Bank said.
So far, according to the bank, global financial conditions remain quite accommodative and Fed’s normalization process has been rather successful. However, the ability of central banks to raise rates further is increasingly being constrained due to the impact of liquidity withdrawal on volatility, credit and ultimately on zombie companies while growth is losing momentum in core countries.
"A market shock that may seem trivial at first can become the trigger of a bear market. What is even more striking is that more and more investors are expecting this scenario to happen any time soon. The question-mark is to know what will the trigger: will it be when the federal funds rate will cross the threshold of 2% or 2.5%? When the US 10-year government benchmark bond yield will be over 3.5%? No one knows…Therefore, in these circumstances, we need to be vigilant," Saxo Bank said.