The head of insurance giant AXA (CS.PA) has warned of “clouds on the horizon” for policymakers, suggesting a long period of low interest rates could threaten retirement savings.
Thomas Buberl said the current period of low interest rates was “necessary” in order to ensure financial markets continued to function and states could issue debt to get through the coronavirus crisis.
But he told a panel session at the virtual Davos Agenda 2021 summit on Tuesday: “When I look forward, there are certain clouds on the horizon.”
He noted interest rates had already been low before the crisis struck, and said a long period of lower rates in future would be “a concern” and potential “distortion” of the markets.
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Buberl asked: “How do we make sure we have sufficient savings, and sufficient yield on savings, in order to pay for our retirements?”
Many workers’ retirements depend on the value of their pension pots or savings rising much faster than inflation to provide an income in decades to come.
Yet low interest rates mean low returns when funds, banks or individuals invest pension pots or savings in stocks, bonds or other markets, holding down their value.
Buberl also suggested preventing inflation and “zombification” were other issues policymakers should be concerned about.
‘Zombification’ refers to companies which would otherwise collapse being kept afloat by cheap credit.
Buberl said policies were now helping firms through the crisis, but warned of the long term: “We also do not want to take away the natural selection mechanism for markets that favours survival of innovative companies.
“Some companies have been able to borrow that wouldn’t have normally been able to borrow.”
“How do we ensure the magic money tree remains the exception, and does not become normality?”
Central banks were effectively making decisions on credit allocation traditionally made by banks, he said.
The Financial Times’ editor Roula Khalaf, chairing the panel, also flagged the risk of cheap credit fuelling asset bubbles.
Buberl said stocks had “very high valuations today,” and asked: “When it comes back to normal, what does it mean to these valuations?”
The difficulty was managing such risks and eventually synchronising an exit from low rates across the world, while not “choking” off growth, he acknowledged.
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