BIS calls for swift intervention by central banks to tackle inflation

The global economy is in danger of entering a new era of high inflation, which central banks must keep under control, the Bank for International Settlements said, according to Bloomberg.

“The risk of stagnant inflation looms over the global economy as the threat of a new era of inflation coincides with weaker growth prospects and increased financial vulnerabilities,” said BIS, which is widely known as the “central bank for central banks.” in its annual report on Sunday.

Policymakers around the world have already raised interest rates to fight the record inflation that comes at a time when the effects of Russia’s invasion of Ukraine and the lockouts in China are hurting global growth. About 70 central banks have increased lending costs, and half of them – including the US Federal Reserve – have resorted to massive increases of 75 basis points or more in one move.

The challenge for central banks will be to keep inflation under control while minimizing the impact on economic activity and decisive action is probably the key, BIS CEO Agustin Carstens told reporters.

“One strong result from our analysis of mild versus hard landing is that you are more likely to be on the side of gentle landing if you tighten in a timely and decisive manner,” he said. “We have seen significant developments in inflation, not just a resurgence, but a possible change in the dynamics of inflation.”

Overall, more needs to be done. “Policymakers need to push through reforms to support long-term growth and lay the groundwork for more normal fiscal and monetary policy adjustments,” the BIS said.