The world’s central bank umbrella body, the Bank for International Settlements, called on Sunday for more interest rate hikes, warning the world economy was now at a crucial point as countries struggle to rein in inflation.
Claudio Borio, the head of BIS’s monetary and economics unit, added there was a risk an “inflationary psychology” was now setting in, although the bigger-than-expected rate hikes in Britain and Norway last week showed central banks were pushing “to get the job done” in terms of tackling the problem.
If interest rates get to mid-1990s levels the overall debt service burden for top economies would, all else being equal, be the highest in history, Borio said. Historically, about 15 percent of rate hike cycles trigger severe stress in the banking system, the BIS report showed, although the frequency rises considerably if interest rates are going up, inflation is surging or house prices have been rising sharply.
It estimated too that the cost of supporting aging populations will grow by approximately 4 percent and 5 percent of GDP in advanced and emerging market economies respectively over the next 20 years. Commenting further on the economic picture, Carstens, former head of Mexico’s central bank, said the emphasis was now on policymakers to act.
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