BIS: central banks “not out of the woods” in fight against inflation

He Bank of International Settlements (BIS), the body that brings together the world’s central banks, on Monday softened its hardline stance on inflation, calling recent progress encouraging but stressing that central banks are not yet out of the woods.

Global economic data have begun to show a clear trend that multi-decade highs in inflation – caused by the resurgence of the COVID-19 pandemic and rising energy prices – are in the rearview mirror.

Money markets are forecasting rate cuts of more than 100 basis points by the US Federal Reserve and the European Central Bank next year, and have moved the planned timing of the first measures to the first half of 2024.

The pace of this change has bothered some policymakers, and for the Bank of International Settlementswhich hosts closed-door meetings of the world’s leading central bankers, a balance must be found.

“The outlook has improved, but the key point we must keep in mind is that we are not out of the woods and we must continue working”he declared Claudio Boriohead of the monetary and economic unit of the BPI.

Borium He added that central banks are focused as “a laser” in reducing inflation, but in a new sign that the rhetoric is softening, he stated that they need to be “flexible and agile” if the slowdown in the global economy requires it.

“The deployment of credit risk” after the huge rise in borrowing costs was still to come, he said, although the markets’ measured reaction to October’s rise in tensions in the Middle East following Hamas’s attack on Israel was reassuring.

The quarterly report of the BPI examined a number of specific issues bubbling beneath the surface of global finance.

One of them was a segment of the consumer credit market known as “buy now, pay later” (BNPL), which has gained popularity in recent years but has already faced crackdowns in some major economies.

According to him BPIthe sector, which remains relatively small and does not pose a threat to the broader financial system, has prospered thanks to very low interest rates.

“It remains to be seen how well they will do in this much more difficult environment, and I think it will be reasonable to surmise that once this favorable combination is not in place, they will not fare as well.“, said Hyun Song Shinhead of research at BPI.

Speaking more generally, Borium reiterated that the era of ultra-low interest rates was over “back”, although there was clearly a tug-of-war over where markets and central bankers believe interest rates will begin to level off.