"A cautious attitude designed to make sure that one is not
declaring victory too early is the appropriate one".
Global borrowing costs have risen at the fastest pace in
decades over the last year as the Federal Reserve has lifted
U.S. rates 450 basis points from near zero, the European Central
Bank has hiked the euro zone's by 300 bps and other parts of
Europe and many developing economies have done even more.
There are concerns, however, that though inflation in many
major economies is beginning to come down, it will remain
stubbornly high due to volatile energy and food prices, as
China's economy reopens and as workers demand higher wages.
Data on Friday showed U.S. consumer spending increased by
the most in nearly two years in January amid a surge in wage
gains, adding to the view among economists that the Fed will
continue raising its rates well above 5% this year.
In Europe too, the ECB is expected to extend what is already
its steepest-ever streak of rate hikes next month with another
50 basis points hike that would take its key rate to 3%.
"What you don't want to do at all costs is to repeat the
stop-go policies of the 1970s when you are reversing (rates) and
you then realise that the job has not been done," Borio said.
"Then you have to go back and forth."
The BIS' report also included research showing that rate
rises are more likely to cause financial system stress when
private debt levels are high, although tougher "prudential
policies" can reduce the risk and give central banks more room
for manoeuvre.
Another section looks at how higher commodity prices and the
U.S. dollar exchange rate significantly affects the risk of
stagflation - weak growth and high inflation - especially in
developing market economies.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
The race to raise rates ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Marc Jones
Editing by Christina Fincher)
By Marc Jones
LONDON, Feb 27 (Reuters) - Central banks need to "get
the job done" when it comes to getting inflation back under
control, the Bank for International Settlements has said, urging
them to avoid the mistakes of the 1970's by declaring victory
too early.
The BIS, dubbed the bank for central banks, said it was
vital authorities didn't repeat the stop-start cycles of the
1970s when interest rates had to be hiked to painfully high
levels after attempts to lower them resulted in an inflation
surge.
"Central banks have been very, very clear that at this stage
the most important aspect is to get the job done," the head of
the BIS' Monetary and Economic Department, Claudio Borio, said
as part of a quarterly report.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.