The Bank for International Settlements (BIS) believes that central banks should raise their interest rates more to fight high inflation and that they should keep them high for longer than citizens and investors expect. The ‘bank of central banks’ said in its annual economic report, released yesterday, that “inflation has begun to come down from its decade-long highs almost everywhere, but the job of central banks is far from done.” .
The general director of the BIS, the Mexican Agustín Carstens, affirmed during the annual meeting held yesterday in Basel, headquarters of the entity, that “the key political challenge today is to completely control inflation, and the final stretch is usually the most difficult”, reports Europa Press. In his opinion, “the burden falls on many shoulders, but the risks of not acting promptly will be greater in the long run. Central banks are committed to staying the course to restore price stability and protect the purchasing power of the population.
Nearly 95% of the world’s central banks raised their interest rates from the start of 2021 to mid-2023, according to the BIS. Historically, the percentage rarely exceeds 50%, although it exceeded 80% during the oil crisis of the 1970s.
Central bank rate hikes in emerging and advanced economies have gone twice the historical pace. But interest rates are still below inflation and therefore imply negative real rates.
Growth in the global economy slowed from 6.3% in 2021 to 3.4% in 2022, weakening further in the first quarter of 2023, but has so far avoided recession, according to the BIS.
So far, the economy has held up well to rising money prices, supply chain problems have eased and energy prices have fallen, but the job market is still overheated and price hikes in services are difficult to break, according to the BIS.
Thus, there is a risk that inflation takes hold when increases in wages and prices reinforce each other, says this body.
Carstens stressed that “prices in the service sectors are still rising, labor markets are hot and unemployment is low.” The director general of the BIS added that “in Switzerland and Germany many restaurants have not been able to reopen because they cannot find staff”
