The Bank for International Settlements (BIS), which represents all central banks worldwide, has demanded that interest rates be increased “quickly and decisively” in order to stop the inflationary spike from becoming even more of a problem.
Top central bankers recently gathered at the BIS’s annual meeting in Switzerland to address their present challenges and one of the most volatile starts to a year ever for global financial markets.
Inflation is at its highest point in many regions in decades as a result of rising energy and food prices. However, the typical solution of raising interest rates raises the threat of recession and even the dreaded “stagflation” of the 1970s, in which rising prices are combined with slow or negative economic development.
“The key for central banks is to act quickly and decisively before inflation becomes entrenched,” Agustín Carstens, BIS general manager, said as part of the body’s post-meeting annual report.
Carstens, former head of Mexico’s central bank, said the emphasis was to act in “quarters to come”. The BIS thinks an economic soft landing – where rates rise without triggering recessions – is still possible, but accepts it is a difficult situation.
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