Moreover, after receiving credit, the debtors would have an incentive to enter greater risks – the keyword is ‘moral hazard’. If banks have difficulty in assessing their potential borrowers’ risk and are unable to monitor the behaviour of their debtors perfectly, they tend to refuse to grant credit, especially in a situation of economic uncertainty.
In particular, the fact that inflation risk premia are low means that companies as well as housing associations seeking long-term financing do not have to pay for the risk that the central bank may not be able to maintain price stability over the longer term.