The Bank for International Settlements (BIS) published its annual report today, warning of a still “challenging” global economic environment. Nevertheless, the institution believes that the global economy will achieve a soft landing and predicts a continued decline in inflation, with indices returning to the targets set by central banks.
The BIS report suggests that, although inflation continues to decrease, there may be resistance in the final phase of the battle against price increases. Therefore, central banks will closely monitor changes in the economic environment and will consider interest rate hikes only in extreme cases. The institution states that there is currently no need to raise interest rates in most countries.
Agustín Carstens, General Manager of the BIS, stated in a press conference that the main message of the report is that there is no justification for further interest rate hikes in most countries during the current economic phase. He emphasized that, while the economic environment remains challenging, caution in monetary policy must be prioritized to avoid unnecessary rate increases, which should only be implemented in extremely serious situations.
Carstens warned that if circumstances or outlooks change, central banks should be prepared to raise interest rates in extreme scenarios. However, he stressed that the BIS does not recommend that monetary authorities initiate a new cycle of rate hikes. The focus should be on careful monitoring and an appropriate response to changes in economic conditions.
The BIS also outlines two alternative plausible scenarios. The first scenario envisions a possible revival of inflation, driven by resistance in prices or unexpected shocks. The second scenario includes a continued decline in inflation, but with a significant deterioration in global economic growth, potentially leading to a forced landing.
The BIS report highlights several risk factors for inflation. A key factor is the adjustment of prices in the service sector compared to goods. Additionally, the behavior of wages in relation to the price level of goods and services is crucial, as the service sector is labor-intensive.
Carstens underscored that fiscal sustainability is a “general concern” that does not apply to just one or two countries. He pointed out that this concern tends to grow as interest rates remain high and emphasized that overly loose fiscal policy could contradict monetary policy and negatively impact the disinflation process. Carstens stressed that macro-financial stability depends on effective coordination between fiscal and monetary policy.
To ensure the current functioning of markets, Carstens suggested that it would be “desirable” for governments to consolidate their public finances and reduce debt in relation to GDP. In his annual report, he concluded that in this challenging environment, policies should aim to guide the economy back to price stability and lay the foundations for sustainable growth.
The Bank for International Settlements (BIS) is an international financial institution founded in 1930, headquartered in Basel, Switzerland. Originally established to facilitate war reparations between countries and ensure international financial stability after World War I, the BIS has evolved into a central bank for central banks and an important forum for global monetary cooperation.
The BIS plays a crucial role in promoting cooperation among central banks and currency authorities of various countries. It provides a neutral space for discussions and the exchange of information on global economic and financial issues. This forum enables the coordination of monetary policies and the exchange of best practices, contributing to a more coherent and efficient approach to addressing global economic challenges.
The Bank also offers a range of specialized financial services for central banks and other international financial institutions. Services include managing currency reserves, money market operations, and loans. Additionally, the BIS conducts accounts and transactions on behalf of central banks, supporting their liquidity needs and other financial operations.
The BIS conducts detailed research on a variety of monetary, financial, and economic topics. Its publications and analyses are highly regarded for their rigorous and methodical approaches. It regularly publishes reports and studies on topics such as financial stability, monetary policy, global economic changes, and trends in financial markets. These studies provide crucial data for policymaking and help in understanding global economic dynamics.
The BIS also actively participates in formulating and implementing international financial standards and regulations. It collaborates with committees and working groups to develop guidelines that promote the stability and integrity of the global financial system. A notable example is the Basel Committee on Banking Supervision, which the BIS supports in developing supervisory standards for the regulation and oversight of banks. These standards aim to enhance the resilience of the global banking and financial system.
The Bank is governed by a Board of Governors composed of representatives from the central banks of member countries. This board sets the general policy directions and strategies of the institution and ensures that its activities align with the goals of promoting monetary cooperation and global financial stability.
The BIS Executive Committee is responsible for the daily management of the institution. This committee oversees the implementation of the policies set by the Board of Governors and manages the operational activities of the institution.
The BIS is known for its influential and detailed publications that provide valuable insights into global economic and financial policy. Its main publications include:
- Annual Report: A comprehensive document summarizing the BIS’s activities over the year and providing an overview of global economic and financial conditions.
- Financial Stability Reports: In-depth analyses of the stability of financial systems and emerging risks.
- Research and Technical Studies: Publications that investigate specific issues and offer recommendations based on detailed research.
The BIS plays an essential role in the global financial system by serving as a coordination and cooperation center between central banks and other international financial institutions. Its ability to provide specialized financial services, conduct comprehensive research, and develop international standards significantly contributes to global financial stability. The BIS acts as a catalyst for collaboration among currency authorities and helps ensure a coordinated response to global economic and financial challenges.
As the “bank of central banks,” the BIS has a unique and vital function in promoting financial stability and facilitating international cooperation. Its activities and recommendations influence the formulation of monetary and financial policy worldwide, contributing to a more stable and resilient global financial system.
