The last straight line in the fight against inflation will be “the most difficult” for central banks, warns the Bank for International Settlements (BIS) this Sunday, when they still have to raise their rates. Faced with galloping inflation, central banks have launched a cycle of tightening their interest rates unprecedented since the 1970s, explains this institution considered the central bank of central banks in its annual report.
The goal is to prevent inflation from taking hold. This tightening of monetary policies occurs, however, in a very delicate context given the debt accumulated by companies and States after a long phase of exceptionally low interest rates. “Stabilizing inflation requires effort,” said Agustín Carstens, executive director of the BIS and former governor of Mexico’s central bank in a statement accompanying the report, but “an adjustment that is too slow today may require more effort in the long term,” he said.
An unprecedented inflation-financial instability pairing
With commodity prices ebbing and supply chains loosening, inflation has started to ease. These are, however, the “easiest” “gains”, stressed Agustín Carstens in a speech delivered at the general assembly of this institution located in Basel, Switzerland. Significant progress remains to be made, but the calibration of monetary policies for the final stretch is taking place against a backdrop of tight housing markets, high debt and a record low unemployment rate, which is putting pressure on wages with the risk to feed inflation. .
This rate adjustment cycle has already revealed weaknesses in the financial system, stressed Agustín Carstens, who cited the shocks to pension funds in the United Kingdom as an example and alluded to the bankruptcy of the American bank SVB as well as the collapse of Credit Suisse . In its annual report, the BIS urged governments to cut their deficits, noting that fiscal policies can also help stabilize the economy and give central banks a bit more leeway.
Source: BFM TV
