FRANKFURT, Aug 14, 2007 (AFP) – By injecting billions into the money markets in the wake of fears about the US housing market, central banks are reaping what they have sown after years of low interest rates, analysts said Tuesday. IKB’s main shareholder, the German state-owned KfW bank, came to the rescue by providing an 8.1-billion-euro (11.1-billion-dollar) liquidity line. The European Central Bank, the Fed in the United States and Japan’s central bank have all pumped money into the markets over recent days in a sustained effort to give commercial banks the liquidity to continue making loans.
But analysts said that low interest rates set by central banks in recent years had encouraged a credit boom and had sparked a rush towards high-risk areas such as the subprime home loans which are at the root of the problem,
“The record activity in leveraged buyouts and the low interest rates on risky loans are responsible for the crisis,” Joerg Kraemer, chief economist of Commerzbank, told AFP.
“From this point of view, the ECB and the Fed have a direct responsibility because they kept interest rates at a very low levels in recent years,” he said.
Ulrich Kater of Dekabank said: “With the low rates over the past few years