But lately, this dynamic has worked powerfully in the reverse direction, with sharply rising risk premia diluting the effect of lower policy rates.
The most damaging instances of this have been in the United States and the United Kingdom, where despite quite aggressive reductions in the interest rates set by the central banks, rates paid by many borrowers have not fallen very much until quite recently. In addition, even where interest rates have declined, many banks display an individually understandable, but systemically damaging, reluctance to lend.