Bank for International Settlements bets on aggressive rate hikes despite recession risks

Bank for International Settlements bets on aggressive rate hikes despite recession risks

The Bank for International Settlements (BIS), an organization of the world’s central banks, urged major economies to continue increases in interest rates Despite the growing threat of recession and volatility in the foreign exchange market.

The quarterly report from the Switzerland-based Bank for International Settlements acknowledges that recession and debt risks are on the rise, but says it is still critical to curb the surge in growth. global inflation.

β€œIt is important to act in a timely and robust manner,” said the Director of the Monetary and Economic Department at the Bank for International Settlements. Claudio Borio. “An anticipation (of price hikes) tends to reduce the likelihood of a hard landing.”

It is expected this week Federal Reserve From the United States to raise interest rates again. The Fed’s sharp moves this year, along with Russia’s invasion of Ukraine, have caused major turmoil in financial markets.

What makes it especially complicated, Borio added, is that it’s the first time since at least then World War II It tries to tackle inflation when there is a debt crisis and there is a lot of concern about overvalued real estate markets.

In addition, growth expectations continued to be revised downward, while inflation expectations continued to rise.

“We know the path is very narrow, and obviously if there was a risk of a recession before, the risk has increased,” Borio said.

The rapid rise in inflation, interest rates and energy prices this year has caused one of the biggest falls in the history of financial markets.

Global stock indices have lost more than 16% since January. The yen, the euro and most emerging market currencies were hit, as yields on US Treasuries, the benchmark for global lending markets, rose to record levels since 2011.

A special section of the BIS report also indicated the possibility of more problems in the future.

He warned that it would be difficult to replace Russian oil, given the limited spare capacity of other major producers and the lack of investment in new projects.

This could lead to a sustained increase in the prices of oil-related products, while the jump in natural gas prices could have a broad and long-term impact on electricity prices and place a significant strain on industrial production.

Outside the United States, a rising dollar is exacerbating inflation problems and putting pressure on less developed countries that have borrowed heavily in dollars but are now struggling to pay them back as their currencies fall.

β€œThis could lead to more pressure to tighten monetary policy in order to avoid a significant currency devaluation and could also lead, as an additional tool, to foreign currency intervention, as has already happened in many countries,” Borio said.

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