Carstens warns of persistently high inflation and financial instability

The commercial property sector has additional risks as demand for offices has been reduced post-pandemic due to telecommuting.

Many small and regional banks in many advanced economies accumulate credit in this sector.

The BIS is also concerned about the sustainability of public debt, which can create financial instability.

The head of the BIS’s Monetary and Economic department, Argentine Claudio Borio, told the assembly that “the long-term trajectories of government debt pose the greatest threat” because they have reduced stability and will continue to do so.

“As monetary policy normalizes, the biggest risk is the unsustainability of government debt trajectories, a factor that has already begun to weigh on the credit ratings of advanced and emerging economy debt. “, according to Borio.

“The current tensions are the culmination of decades of reliance on monetary and fiscal policies as de facto drivers of growth. Overcoming this fallacy of the ‘illusion of growth’ and finding a coherent policy mix requires a shift in mindset, acknowledging the limitations of stabilization policies,” Borio said.

The BIS also recommends that governments adjust their budgets while supporting the most vulnerable and consolidating their spending in the long term.

In this way, governments would help to tame inflation and reduce the need for central banks to have to keep interest rates high for longer.