There’s nothing to wait for. Central banks should continue to raise interest rates sharply to bring inflation back within reasonable limits. This is the recommendation of the BIS, the Bank for International Settlements.
Interest rate increases are needed
According to the BIS, there is a need to raise interest rates despite the increasing risk of an economic recession. But bringing inflation down to an acceptable level, i.e. within the medium-term inflation targets, is absolutely crucial and should take precedence over everything else.
“It is important to act in a timely and strong manner,” said Claudio Borio, head of the monetary and economic section at the Bank for International Settlements. In his view, early action will reduce the likelihood of a hard economic landing.
Unique inflationary situation
Although this is not the first time developed economies have faced high inflation, it is a unique situation. Indeed, this is the first time since the Second World War that inflation has appeared in the context of the coming debt crisis and overvalued assets in the real estate and financial markets. “We know that the path to low inflation is very narrow and that anti-inflationary policies will only increase the risk of recession,” Borio added. But, he said, that is the price to pay.
