BIS urges central banks to “do homework”

The Bank for International Settlements (BIS) said central banks need to “do their homework” to bring inflation back under control, urging them to avoid the mistakes of the 1970s, when they declared themselves victors too early.

The BIS, known as the bank of central banks, has said it is vital that policymakers do not repeat the stop-start cycles of the 1970s, when interest rates had to be raised to painfully high levels after attempts lowering them caused a rise in inflation.

“Central banks have been very, very clear that right now the most important thing is to do your homework.”, said the head of the Monetary and Economic Department of the BIS, Claudio Borioas part of a quarterly report.

“A prudent stance aimed at making sure you are not declaring victory too early is the right one.”.

Global borrowing costs have risen at the fastest pace in decades over the past year.

The Federal Reserve has raised US rates 450 basis points from near zero, the European Central Bank has raised euro zone rates 300 basis points and elsewhere in Europe and developing economies the hikes have been even steeper.

However, there is concern that while inflation in many major economies is starting to come down, it will remain stubbornly high due to volatile energy and food prices, the reopening of the Chinese economy and the demand for wages. higher for workers.

Data on Friday showed that US consumer spending rose in January against a backdrop of rising wages, reinforcing economists’ view that the Federal Reserve will continue to raise rates above 5% this year.

Also in Europe it is expected that the ECB extend the steepest rate hike in its history next month, with another 50 basis point increase that would put its benchmark rate at 3%.

“What you absolutely don’t want to do is repeat the stop-go policies of the 1970s, when they (rates) reversed and then you realize you haven’t done your homework“, said Borium. “So you have to go back and forth”.

The report of BIS It also includes studies showing that rate hikes are more likely to stress the financial system when private debt levels are high, although some “prudential policies” Tighter policies can reduce risk and give central banks more leeway.

Another section examines how rising commodity prices and the US dollar exchange rate significantly affect the risk of stagflation – weak growth and high inflation – especially in developing market economies.

Source: Reuters