We cannot promise ex ante that interest rates will be reduced if budgetary authorities promise to reduce fiscal deficits. The main problem is not even that promises and outcomes may differ, which unfortunately they sometimes do.
The latest Global Financial Stability Report (GFSR) by the IMF warns that because of these developments, vulnerabilities in the sovereign, corporate, and non-bank financial sectors are elevated by historical standards in several systemically important countries and regions. Under these circumstances, central banks and other regulators are required to follow the cardinal principle – the regulator never sleeps.