Central Bankers Warn of 'Tipping Point' - WSJ.com
- added July 1, 2008
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- TheRealEdwin
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BASEL, Switzerland -- The global economy may be close to a "tipping point" that could see it enter a slowdown so severe that it transforms the current period of rising inflation into a period of falling prices, the Bank for International Settlements said Monday.
In its annual report, the central bank for central banks said the impact of rising food and energy prices on consumers' incomes, combined with heavy household debts and a pullback in bank lending, may lead to a slowdown in global growth that "could prove to be much greater and longer-lasting than would be required to keep inflation under control."
"Over time, this could potentially even lead to deflation," it said.
For central bankers from around the world gathered in Basel for the BIS's annual meeting Sunday and Monday, the report made for chastening reading. Not only does it highlight the difficulty of the dilemma facing central banks -- confronted with slowing growth at a time when inflationary pressures are rising -- it also lays much of the blame for their predicament at the feet of the central banks themselves.
High inflation rates may not ease in 2009, as expected, and central bankers need to be extra vigilant to stop inflation expectations from creeping upward, Malcolm Knight, the BIS general manager told a news conference. There is "a clear and present danger of rising global inflation and inflationary expectations," Mr. Knight cautioned.
The BIS said that in the early part of this decade, central banks had failed to set interest rates high enough to restrain an unsustainable credit boom.
And it added that if a repeat of the current financial crisis is to be avoided in the future, central banks must be prepared to keep interest rates high even when there are no obvious signs that inflation rates are about to pick up. It also suggested that regulators make banks set aside more capital during boom times, an approach that could curb their risk-taking and lessen their need to pull back on lending during busts.
The BIS regards a slide into deflation as an unlikely outcome, and for now, rising inflation is a more imminent danger than a severe slowdown.
In its annual report, the central bank for central banks said the impact of rising food and energy prices on consumers' incomes, combined with heavy household debts and a pullback in bank lending, may lead to a slowdown in global growth that "could prove to be much greater and longer-lasting than would be required to keep inflation under control."
"Over time, this could potentially even lead to deflation," it said.
For central bankers from around the world gathered in Basel for the BIS's annual meeting Sunday and Monday, the report made for chastening reading. Not only does it highlight the difficulty of the dilemma facing central banks -- confronted with slowing growth at a time when inflationary pressures are rising -- it also lays much of the blame for their predicament at the feet of the central banks themselves.
High inflation rates may not ease in 2009, as expected, and central bankers need to be extra vigilant to stop inflation expectations from creeping upward, Malcolm Knight, the BIS general manager told a news conference. There is "a clear and present danger of rising global inflation and inflationary expectations," Mr. Knight cautioned.
The BIS said that in the early part of this decade, central banks had failed to set interest rates high enough to restrain an unsustainable credit boom.
And it added that if a repeat of the current financial crisis is to be avoided in the future, central banks must be prepared to keep interest rates high even when there are no obvious signs that inflation rates are about to pick up. It also suggested that regulators make banks set aside more capital during boom times, an approach that could curb their risk-taking and lessen their need to pull back on lending during busts.
The BIS regards a slide into deflation as an unlikely outcome, and for now, rising inflation is a more imminent danger than a severe slowdown.
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- TheRealEdwin
- 3 months ago
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