The Organisation for Economic Co-operation and Development has expressed concern about ultra-low interest rates inthe global economy, saying the decline presents an increasing danger of financial instability

Citing lower oil prices and the European Central Bank’s €1.16 trillion bond-buying scheme, the OECD says in a new forecast that the growth prospects for major world economies look “slightly better” than in its previous forecast in November.

However, the Paris-based body foresees moderate rather than rapid economic growth and says the projected expansion rate remains too low to fully repair and activate labour markets.

Although there is no assessment in the interim forecast for smaller countries such as Ireland, the OECD has increased its forecast for euro zone growth by 0.3 percentage points to 1.4 per cent for 2015 by the same amount to 2 per cent for 2016. Crucial here was 0.6 percentage point increase to 1.7 per cent in the forecast for German growth in 2015, with its 2016 forecast upgraded by 0.4 percentage points to 2.2 per cent.

Saying central bank policies remain the centrepiece of the recovery, the OECD warned againt exclusive reliance on monetary policy and called for governments to support monetary policy with a “more balanced approach” to fiscal and structural policy.

“While it is both expected and desired to have low interest rates when many central banks are reacting to below-target inflation and below-potential output with accommodative monetary policy, the extent of the decline appears in some cases to be flashing a warning signal,” the OECD said.

“Mispricing of risk was at the heart of the previous financial crisis, and such mispricing may be in evidence again. It is remarkable that a growing number of national governments are able to sell medium-term bonds at negative nominal interest rates.”

The countries cited by the OECD in a graph of negative yields on three-year debt were: Denmark, Japan, Switzerland, Sweden, Germany, France, Austria, Belgium and the Netherlands.

The OECD noted that global equity indices have reached new peaks in recent months, saying spreads between risk-free rates and higher-risk instruments remain compressed despite recent increases.

Still, it said growing risks associated with abnormally low nominal interest rates should not deter the major central banks from maintaining their highly accommodative stance.

“Given the extraordinary circumstances prevailing since the global crisis, exceptional measures to support demand and resist disinflationary tendencies have been needed.

“But, the failure of monetary easing alone to spur strong growth in fixed investment, with booms in financial investments instead, implies that policymakers should not rely exclusively on monetary policy.”