Agustin Carstens, the general manager of the Bank of International Settlements (BIS), warned that the international financial system had ‘stretched the limits of stability’ by fighting one economic crisis after another. This included the global inflation crisis.
He was speaking at Columbia University, New York. He said that the interest rates may have to stay higher for a longer time to prevent a “long-term high inflation regime” even though it could lead to an economic slowdown.
The BIS is considered to be the central bankers’ central bank. In the post-pandemic phase, central banks across the world have raised interest rates to control global inflation rates.
Debts piled up during the pandemic as countries liberally borrowed to keep their economies afloat.
Central banks have now started feeling the political pressure to slow down their interest rate hikes. They do not want the cost of servicing these debts to spiral out of control.
Carsten noted that after the second world war, for the first time, the debt levels surged while the global inflation rates are so high.
Policymakers need to let the inflation rate settle down before they plan their next stimulus package or the banking stress could lead to a global economic crisis.
