• Nomura chief economist speaks in interview at Ambrosetti forum
  • Lower BOJ and ECB rates possible, but would be ineffective

Further easing in credit conditions is unlikely to move central banks closer to their inflation targets unless they’re able to address the confidence crisis among borrowers, said Nomura Research Institute chief economist Richard Koo.

“All policies central banks are putting in place help lenders to lend money,” Koo said in a Bloomberg Television interview with Manus Cranny from the Ambrosetti Workshop in Cernobbio, Italy on Friday. “But the problem is that when borrowers are missing, there is little central banks can do.”

The Bank of Japan surprised markets by adopting negative interest rates in January, more than a year and a half after the European Central Bank became the first major institution of its kind to venture below zero. The ECB reduced its deposit rate further to minus 0.4 percent in March.

More cuts might follow, Koo said, though central banks’ easing policies will remain ineffective until policy makers understand they are facing a borrowers’ rather than a lenders’ issue.

The borrower confidence crisis follows the 2008 financial crash that left a psychological impact, according to the Nomura economist.

Kit Juckes, global strategist at Societe Generale in London, expressed a similar position in an e-mailed response to questions on Friday.

“In the post-crisis world we aren’t confident enough to borrow,” Juckes said. “In a deflationary world, even if debt servicing costs are low, our debt is scary because it isn’t reduced over time by inflation. This is why the post-crisis recovery will be weak.”

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