The risks of a prolonged period of very low interest rates

The presence of possible distortions caused by a prolonged period of low interest rates indicates that policymakers should raise interest rates as soon as macroeconomic conditions allow. Low interest rates are good for macroeconomic stability in the short run, but could harm long-run financial stability and macroeconomic performance because they tend to amplify risktaking, expose financial institutions to losses arising from a future tightening of monetary conditions and delay adjustment in their balance sheets.