India's central bank, Reserve Bank of India (RBI), has warned of another financial crisis brewing, as incremental central bank liquidity could bring another asset bubble which would down the world financial system, reported local daily Economic Times electronic edition Thursday.
The newspaper said global liquidity becomes a concern amidst central banks "pegging their lending rates at near zero levels, leaving scope for another asset bubble to take down the global financial system".
"There is, thus, incontrovertible evidence that there is yet again a huge under-pricing of risks in the financial system and, therefore, it is not a question of if, but when, the generic asset bubble caused by manifold increases in balance sheets of central banks will burst," the RBI Executive Director V.K. Sharma was quoted as saying in a address in Singapore this week.
He said one of the major worries this time around, which did not exist back then, is global liquidity, according to the report.
Balance sheets of major banks have grown by almost three times from pre-2007 levels, while near-zero policy rates have added 4 trillion U.S. dollars in incremental central bank liquidity.
Sharma also mentioned that the United States has been keeping excess reserves of about 1.5 trillion U.S. dollars with the Federal Reserve rather than lending it to small businesses and households.