BIS calls on central banks to be more accurate and agile with rate hikes to stop inflation

By Mark Jones

LONDON, June 26 (Reuters) – The body that coordinates the world’s major central banks, the Bank for International Settlements (BIS), has called for interest rates to be raised “rapidly and decisively” to prevent the advance of inflation become even more problematic.

The Switzerland-based BIS held its annual meeting in recent days, where top central bankers gathered to discuss their current difficulties and one of the most turbulent starts to the year for global financial markets.

Rising energy and food prices have generated the highest inflation in decades for many countries. But the usual remedy of raising interest rates requires raising the risk of recession, and even the dreaded 1970s-style “stagflation,” where rising prices were combined with low or negative economic growth.

“The key for central banks is to act quickly and decisively before inflation takes hold,” Agustín Carstens, general manager of the BIS, said as part of the agency’s annual report released on Sunday.

Carstens, a former head of Mexico’s central bank, said the emphasis was on acting in the “quarters to come.” The BIS believes an economic soft landing, where rates rise without triggering recessions, is still possible, but acknowledges that it is a difficult situation.

“Much will depend on precisely how permanent these (inflationary) shocks are,” Carstens said, adding that the response of financial markets would also be crucial.

“If this adjustment leads to massive losses, widespread asset corrections and that taints consumption, investment and employment, of course that’s a more difficult scenario.”

World markets are already suffering one of the biggest sell-offs in recent history as central banks like the US Federal Reserve, and from next month the ECB, move away from historically low rates and almost 15 years of measures. continuous stimulation.

Global stocks are down 20% since January and some analysts estimate that US Treasuries, the benchmark of global lending markets, could be posting their biggest loss in the first half of the year since 1788.

CREDIBILITY

Carstens said recent warnings from the BIS itself about skyrocketing asset prices meant the current correction was “not necessarily a complete surprise”. The fact that there has been no “serious market turmoil” so far is also reassuring, he added.

Part of a BIS report published last week said that the recent implosions in cryptocurrency markets were an indication that long-warned dangers of decentralized digital money were now materializing.

Those collapses are not expected to cause a systemic crisis in the way bad loans triggered the global financial crisis. But Carstens stressed that the losses would be considerable and that the opaque nature of the crypto universe fueled the uncertainty.

Turning to the macroeconomic picture, he added that the BIS did not currently expect a period of widespread stagflation to take hold.

He also said that although many global central banks and the BIS itself had significantly underestimated how quickly global inflation had soared in the past six to 12 months, they were not about to lose their hard-won credibility overnight. morning.

“Yes, you can argue here a bit about a timing error of certain actions and the responses of the central banks. But overall, I think the central banks have responded strongly in a very nimble way,” Carstens said.

“My perception is that the central banks will prevail at the end of the day, and that would be good for their credibility,” he said.

(Reporting by Marc Jones. Editing in Spanish by Marion Giraldo)