By Jaromir Chalabala @

In an interview with the Financial Times, Agustin Carstens of the BIS, said that investors have become a disciplining force that will leave markets, specifically those with debt-laden government with little room to grow. Claire Jones writes:

The “disciplining force” of financial markets will leave debt-laden governments with limited room to boost growth as central banks ditch their crisis-era stimulus, the head of the Bank for International Settlements has warned.

Agustín Carstens, general manager of the central bankers’ bank, told the Financial Times: “Some markets are overstretched and so investors will be very jittery. There is less space for taking adventurous steps. Markets will be more volatile and more sensitive to adjustments in interest rates.”

Mr Carstens also said investors had become “a disciplining force”, citing the recent rise in Italian government borrowing costs after a now-rejected plan by Rome’s new coalition government for the European Central Bank to write off all their holdings of Italian debt — a move which the general manager said “sent all the wrong signals”.

Italian borrowing costs have since fallen back to 2.68 per cent after signals from new finance minister Giovanni Tria that Rome remains committed to membership of the euro.

Mr Carstens’ remarks highlight the difficulty facing economic policymakers who need to ensure growth remains on track, while taking onboard markets’ concerns about high debt levels in a world where central bank borrowing is no longer so cheap and plentiful.

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