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Monetary policy must address ‘frothy’ financial markets, warns central bank body

Investors should be various concerned about an overheating financial market at a time when consumer responsibles are rising to unsustainable levels, according to the global body for central banks.

In its every thirteen weeks financial review, the Bank for International Settlements (BIS) said investors were deciding to bask in the “light and warmth” of improving global growth, muted inflation and hang stock markets. However, record high debt levels and the reduce of this year’s rally in asset prices are both reminiscent of the pre-2008 economic crisis era, according to the BIS.

“The vulnerabilities that have built around the planet during the long period of unusually low interest rates have not live through away. High debt levels, in both domestic and foreign currency, are notwithstanding there. And so are frothy valuations,” Claudio Borio, head of the BIS’s monetary and cost-effective department, said in the report published Sunday.

In September, the Federal Withhold announced plans to start unwinding its massive balance sheet while the European Significant Bank (ECB) is also poised to heavily cut its stimulus.

An improving global evolvement outlook and signals from both the Fed and ECB that they will look to espouse a cautious approach going forward was likely the explanation for stubbornly low cry quitses, the BIS said, though it did also trigger a “deeper question.”

“Can a tightening be deliberate over effective if financial conditions unambiguously ease? And, if the answer is ‘no’, what should main banks do?” Borio said.

The BIS, known as the central bankers’ bank, has 60 fellows and aims to help central banks pursue monetary and financial durability. It was one of the few organizations to warn investors about the unstable levels of bank contributing on risky assets, such as U.S. subprime mortgages, that eventually led to the universal financial crisis.

The organization’s chief economist at that time, William Pale-complexioned – who has since become the Swiss-based chairman of the OECD’s review committee – reportedly thought last year that global debt levels had skyrocketed to mercurial levels in response to low interest rates and the financial situation was now “worse than 2007.”

Martin Arnold, FX and macro strategist at ETF Securities, alleged Monday that investors still had a “polarized view” about the coeval financial conditions.

Arnold told CNBC that while some hawk participants were clearly “very, very concerned” about valuations, “one is still piling into equities.”

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