The Bank of international settlements, Basel, Switzerland (MNI) - the vagueness of the monetary policy in many economies in the world quickly turning into an inflationary risk, said in its latest annual report, released Sunday.
Despite the weaknesses of the financial sector, central banks may need to tighten more quickly than in the past, because there is a risk of inflation becoming unanchored expectations, BIS said.
Although "the advanced economies have been toward a self-sustaining recovery, it would be a mistake for policy makers to relax" since the crisis has left various "legacy and lessons" that dealing with the need, the institution said.
It is debt levels high which continue to weigh on household spending and businesses in many large economies; reemerging global financial imbalances; and "highly flexibility of monetary policy" which "are becoming a threat to the stability of prices".
Exit narrowing gaps and products higher prices have already increased global inflation risks, said the report.
"The spread of the dangers of inflation in the major emerging market economies to economies reinforces the conclusion that the policy rate should increase around the world," the BIS said.
"The great danger is that long-term inflation expectations will begin to rise, and the current evolution of prices and political positions are sending us in the wrong direction," he argued.
Re-ANCHORING of inflation expectations would need "an expensive, prolonged effort", recalled to the bis.
As spare capacity decreases, higher food and energy prices is more likely to have second round inflationary effects,"he warned. "And the risk to long-term inflation expectations are intensified by non-conventional continuation of monetary policy actions, outsized Central Bank balance sheets in the core advanced economies and a temptation seen to inflate away from the actual value of the ballooning government debt.".
Some countries who face the need to raise borrowing costs also face "vulnerabilities updates still-distorted and the persistent fragility of the financial sector," but nonetheless, "once central banks start lifting rates, may be required so much more quickly than in past tightening of the episodes," wrote the BIS.
The challenges of monetary policy "are intensifying" and the period of accommodation is "already extended," according to the BIS. Very low interest rates in major economies are slowing the pace at which households and financial institutions adjust their balance sheets. Present in turn "is magnifying the risk that the distortions that arose before the crisis will be back."
As central banks are seeking to do with the need for output of the measures taken during the crisis, their own record also pose risks, the bis said. That "failure to manage these risks could undermine their credibility earned in the delivery of low inflation could move an end to tighten policy by conventional channels."
The housing before the crisis and the financial sector boom concealing financial weakness in the long term "which, if left unchecked, could trigger the next crisis," the bis warned.
In a language which was relatively blunt for this conservative institution, the BIS has continued: "" we should not here wrong: the market turbulence surrounding the financial crisis in Greece, the Ireland and the Portugal would pale beside the devastation that would follow a loss of investor confidence in the sovereign debt of a large economy. ""
The lessons of the crisis should be taken into account in the emerging economies as well, the Bank argued, with an eye to those where prices of goods and consumption are driven by the increase in debt.
These countries "are running the risk of building the imbalances that now hit the economies," warned the report. In addition, inflationary pressures are increasing in those [emerging] countries and the property price booms and credit risk that central banks should take into account.
Current account imbalances have not disappeared and could lead to developments disordered markets Exchange or protectionism, the Bank said. Financial flows gross exhibit much greater imbalances, and if reversed cross-border capital flows suddenly, which could be damaging to financial sectors and the real economy, the BIS said.
No comments:
Post a Comment