Group Of Central Banks Push Global Rate Hikes vs Inflation

The Bank for International Settlements (BIS), the world's central bank umbrella organization, has asked for interest rates to be hiked "quickly and decisively" to prevent a jump in inflation from becoming calamitous, according to Marc Jones of Reuters.

Photo Insert: The BIS believes that an economic soft landing - in which interest rates rise without sparking recessions - is still conceivable, but acknowledges that it is a tough scenario.

The Swiss-based BIS recently conducted its annual meeting, where senior central bankers convened to discuss their present challenges and one of the most tumultuous beginnings to a year in global financial markets ever.

Inflation in many locations is currently at its highest in decades, thanks to rising energy and food prices. However, hiking interest rates raises the prospect of recession, and even the dreaded "stagflation" of the 1970s, in which rising prices are accompanied by low or negative economic growth.

"The key for central banks is to act quickly and decisively before inflation becomes entrenched," BIS general manager Agustn Carstens said in the body's post-meeting annual report, which was issued on Sunday. Carstens, a former president of Mexico's central bank, stated that the emphasis was to act in "quarters to come."

The BIS believes that an economic soft landing - in which interest rates rise without sparking recessions - is still conceivable, but acknowledges that it is a tough scenario.

"A lot of it will depend on precisely on how permanent these (inflationary) shocks are," Carstens said, adding that financial market reaction will also be critical.

"If this tightening generates massive losses, generates massive asset corrections, and that contaminates consumption, investment, and employment - of course, that is a more difficult scenario."

World markets are already seeing one of the most significant sell-offs in recent memory, as heavyweight central banks such as the U.S. Federal Reserve – and, beginning next month, the European Central Bank (ECB) – shift away from record low interest rates and nearly 15 years of back-to-back stimulus programs.

Global stocks are down 20% since January, and some analysts believe that U.S. Treasury bonds, the benchmark of global borrowing markets, may have had their worst first half-year loss since 1788.

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