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Low rates ‘contributing to rise in market risk’

Low interest rates are contributing to a potential increase in financial market risk, as major policymakers rely on monetary stimulus to bolster growth, Group of Twenty finance chiefs and central bankers warned yesterday.

Low interest rates are contributing to a potential increase in financial market risk, as major policymakers rely on monetary stimulus to bolster growth, Group of Twenty finance chiefs and central bankers warned yesterday.

“We are mindful of the potential for a build-up of excessive risk in financial markets, particularly in an environment of low interest rates and low asset price volatility,” the officials said in a communique.

The global recovery has faltered since a February G20 meeting in Sydney, as signs that Europe risks slipping into deflation offset more buoyant economies in the United States and the United Kingdom and the wealth effects of stock market gains. In Asia, Japan’s revival is being blunted by a sales tax hike and concerns are mounting that China’s 7.5 per cent growth target for this year is becoming harder to attain.

“It is critical we take concrete steps to boost growth and create jobs,” Australian Treasurer Joe Hockey said. “We will use all levers available, including additional fiscal and monetary policy leverage where appropriate.”

An increase in geopolitical risks and the faltering growth outlook in some of the world’s bigger economies have had little lasting impact on major financial markets in the US, Europe and in Asia, amid monetary stimulus by the Federal Reserve, European Central Bank and Bank of Japan.

The Standard & Poor’s 500 Index is in the midst of its longest streak of quarterly gains since 1998, rising last week to a record. The STOXX Europe 600 Index has advanced in five of the past six weeks. “What we are looking at here is an apparent search for return in a low-yield environment and the concern is that we are seeing more investing in higher-risk ventures,” said Canada’s Finance Minister Joe Oliver. “If there is a reappraisal, it could all of a sudden shoot up in volatility and result in losses, and it could be disruptive.” BLOOMBERG

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