Covered interest parity anomaly signals trouble ahead if volatility picks up

Since the financial crisis, a persistent breakdown of covered interest parity signalled an anomaly in the market. Over the last two years the phenomenon has accentuated and policy-makers should not dismiss its meaning, warns the BIS

CIP violation: calm before the storm?

The Bank for International Settlements (BIS) has warned the banking sector may become an amplifier of shocks rather than an absorber if it reacts to resurgent volatility by reducing its intermediation activity like it did during the financial crisis of 2007.

In its Quarterly Review, the BIS underlined a number of warning signs that could suggest interbank liquidity drying up if volatility picks up significantly. One of the measures concerns the deviation from covered interest rate parity (CIP)

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact customer services -, or view our subscription options here:

You are currently unable to copy this content. Please contact [email protected] to find out more.

To continue reading...

You need to sign in to use this feature. If you don’t have a FX Markets account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an indvidual account here: