The general director of the Bank for International Settlements (BIS, for its acronym in English), Agustín Carstens, said on Wednesday that given the high levels of inflation that are occurring globally, the central banks of emerging economies will have to adjust their monetary politics.
“Failure to do so runs the risk of capital outflows and currency depreciations. If the US dollar also appreciates, the pressure will increase and a downgrade of the sovereign debt rating could follow,” he also stressed. former Governor of the Bank of Mexico (Banxico).
At the 2021 annual assembly, Carstens said that the COVID-19 pandemic caused an unprecedented global economic downturn in 2020, but that a global disaster was averted and the situation is now “much better.”
Although the economic recovery started from the second half of last year, Carstens commented that “it is very uneven, incomplete and with uncertain global prospects”, especially in the short term. So monetary policy must respond with “flexibility.”
Carstens warned that public and private debt is very high and that the adverse legacies of the pandemic are great, so the main long-term challenge will be to find a sustainable pace for fiscal and monetary policies.
“We came out of the pandemic with more public debt, lower interest rates and larger central bank balance sheets,” he said. “Normalizing monetary and fiscal policy in the long term will provide a margin of safety necessary to face unforeseen events such as the pandemic itself or future recessions.”
The fact that interest rates are now very low or even negative and that economies are growing facilitates debt sustainability, but this situation “is not forever” because if inflation rises, interest rates will rise and then the payment of the debt will be more complicated, explained the Mexican economist.
The head of the Monetary and Economic department of the BIS, Claudio Borio, said that they do not want interest rates to be so low, but rather to rise, especially real interest rates, and for growth to be healthy.
Some emerging economies have already had to start raising interest rates because they are more affected by the rise in the price of raw materials, but this will not affect their growth, according to Carstens.
With information from EFE
