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The Bank for International Settlements, BIS, presented its quarterly report, in which it recommended that the world’s central banks continue with their increases in interest rates despite the warnings about the risk of recession in the United States and the Eurozone.
A dangerous recommendation. The Bank for International Settlements, BIS, recommended that global institutions continue with the aggressive rises in interest rates to try to curb global inflation, a consequence of the Covid-19 pandemic, blockages in the supply chain and aggravated by the war in Ukraine.
Claudio Borio, head of the BIS Monetary and Economic Department, warned that “if there was a risk of recession, it has increased” and that the countries most vulnerable to energy prices are the ones most at risk of recession.
The increase in this risk is mainly due to the downward revision of the growth outlook, due to the war in Ukraine and the weakening of growth in China, as well as the unstoppable inflation.
The report, which analyzes the global economic situation and market movements from the beginning of June to mid-September, reveals that investors anticipate higher inflation due to poor energy supply in Europe and because the labor market is still robust in USA.
The weakening of growth prospects in Europe due to the energy crisis also has its effect on the depreciation of the euro against the dollar to its lowest level since 2002, below parity.
“The path is quite narrow” because the central banks must apply a restrictive monetary policy, that is, raise interest rates to curb inflation at a time of high levels of public and private debt and with very high prices in the real estate market. elevated, Borio added.
Despite the risk of recession, Borio stressed that now “the important thing for central banks is to focus on inflation.”
“Investors have been quite optimistic the last three months about solving economic challenges,” but “have now woken up to the fact that lawmakers are battling stubborn inflation against a backdrop of financial vulnerabilities,” Borio added.
Added to this is the rise in natural gas prices – especially in Europe – after Russia abruptly cut off supplies.
with EFE
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