In a speech in Brazil, Agustín Carstens, stated that a strong response to inflation was essential to maintain confidence in the ability of central banks to maintain the stability of economies.
“If trust evaporates, the ability to make effective public policy disappears,” Carstens said, explaining that it was the first time that younger generations in many countries had experienced inflation that eroded living standards.
Once entrenched, inflation can be increasingly difficult to stop, Carstens said.
Cooling price pressures is essential, he added. “Otherwise, the credibility of monetary policy, and of the autonomous central banks responsible for applying it, will be in question.”
Carstens asserted that maintaining trust in the banking sector is just as important as doing so in a central bank, pointing to cryptocurrencies, the risk of a “two-tier” monetary system, and the growing role of companies other than traditional banks.
“The need for greater supervision and regulation of the non-bank sector has become more pressing in light of recent episodes of instability,” he said.
With information from Reuters
