Central banks are looking for more tools to manage monetary policy, according to a panel of investors at the recent Fixed Income and Credit Forum.

“My reading is that at Jackson Hole, central bankers were saying they didn’t know if they had all the tools they needed to achieve what is being asked of them,” chair of the investment committee at HESTA, Mark Burgess, said. “They are very human, and just trying to make decisions, in reality they have no more insight than us.”

Speaking at a panel event in Victoria, Burgess said people had come to expect stability from the policymakers.

“The challenge is that central banks have come to the rescue so many times that we are used to seeing smoothness,” he said. “Central bankers are wondering if they have the tools to pull it off.”

Burgess has more than 100 presentations a year with central bankers as part of his role on the board of the OMFIF Foundation, a London-based organisation which aims to improve the functioning of official financial institutions.

When asked what other issues the world’s central banks are concerned with, Burgess pointed to the fact that 1 billion new workers have been injected into the workforce at very cheap rates. He also cited the decline in populations and its impact on credit and the housing market.

“We should focus on absolute declines in population, we have never brought credit systems through that,” he said. “It will create credit behaviours which are not clear, and we haven’t experienced. From a central bank point of view demographics is not a topic they look at a lot. They can’t solve this alone.”

In a panel titled “Are central banks hostages of the market bubble?”, Charlie Jamieson, chief investment officer at Jamieson Coote Bonds, added that the world had become “addicted to stimulus”.

“The bond market is driving central bank policy at the moment, saying they are behind,” he said. But rather than inflate asset prices “we need to inflate people’s economic outcomes”.

“Central banks need to keep rates low because of so much debt in the world,”said Jamieson. “Inflation for now doesn’t seem like it’s going to accelerate anywhere, barring some military moment – is this peak globalisation?”

The CIO said there were some effective QE programs that Australia could employ, pointing in particular to currency.

“Australia should sail through this so long as we keep up our population growth,” he said.

Jamieson said the big issue for the country is the huge amount of corporate debt that needs to be refinanced.

“One sixth of the secondary market credit liquidity is available via balance sheet,” he said. “There is about twice as much credit outstanding – and a lot is in ETFs – if we go to a redeem moment then we will have a bottle neck very quickly. There is a big reliance on relatively short-dated funding and this can cause a nasty bout of indigestion at the wrong moment.”

 

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