"Prolonged and aggressive monetary accommodation may delay the return to a self-sustaining recovery," BIS said. "It can undermine the perceived need to deal with banks' impaired assets."
Political pressure for loose monetary policy, including quantitative easing (QE), also threatened to damage central banks' credibility and destroy their independence, BIS said.
The world's financial regulator spelt out the risks of relying too heavily on the likes of the Bank of England and other central banks as it pressed Europe's leaders to step up their efforts to fix the eurozone's problems.
"The extraordinary persistence of loose monetary policy is largely the result of insufficient action by governments in addressing structural problems," it stated. "Simply put: central banks are being cornered into prolonging monetary stimulus as governments drag their feet and adjustment is delayed. This intense pressure puts at risk the central banks' price stability objective, their credibility and, ultimately, their independence."
The organisation noted that the Bank of England has been one of the most active central banks in the world, buying £325bn of gilts through its QE programme and cutting rates to an historic low of 0.5pc. Last week, the Bank revealed that it is poised to increase QE for a third time.
The analysis came as part of a wider warning from BIS that governments, banks and households struggling with too much debt were dragging down the world's economy and that more needs to be done to make the banking system safer.
"The world is now five years on from the outbreak of the financial crisis, yet the global economy is still unbalanced and seemingly becoming more so," it stated. "Big banks continue to have an interest in driving up their leverage without enough regard for the consequences of failure: because of their systemic weight, they expect the public sector to cover the downside.
"Another worrying sign is that trading, after a brief crisis-induced squeeze, has again become a major source of income for large banks. These conditions are moving the financial sector towards the same high risk profile it had before the crisis."
Stephen Cecchetti, head of BIS's monetary and economic department, said central banks should not be expected to carry the entire load of supporting growth and debt reduction. "In the middle of all this we find the overburdened central banks, pushed to use what power they have to contain the damage," he said. "But there are very clear limits to what central banks can do."
Low rates have allowed borrowers who will never be able to repay their debts to limp on, BIS said, encouraging "wasteful support of effectively insolvent borrowers and banks". It cited the high level of forbearance by Britain's banks that was identified by regulators last year, and resulted in the largest quarterly corporate debt write-off in UK history after lenders were told to be more honest about their positions.
BIS also recommended governments took action to "reduce household debt to sustainable levels" as "the recovery cannot become self-sustaining until the debt of households is brought down to a level that can actually be repaid"
Source: Bank of England's money printing is putting UK economy at risk - Telegraph
This is so great that UK is out of euro for it can control it's interest rates blah blah blah, basically print it's way out of problem and help Govt avoid making real cuts in expenditure - all that's needed now is putting some ex Goldman Sachs banker in charge of BoE
