(Finance) – “Over the past two years, central banks have undertaken the largest and most synchronized tightening of global monetary policy in a generation. Now the end of this exceptional squeeze is in sight. Most central banks have signaled that policy rates may have peaked,” he said Agustin CarstensGeneral Manager of the Bank for International Settlements, in a speech in Basel.
“Meanwhile, economic activity remained surprisingly resilient, strengthening the confidence that economies could be ready for a soft landing scenarioor at least soft-ish,” he added.
“If this is true, the fight against inflation has had a remarkably low cost in terms of lower GDP growth or higher unemployment – he explained – If in 2021 I had told most economists that the major central banks would increase policy rates of 5 percentage points, would have predicted a sizable impact on economic activity, or even a recession.And, given the already high debt levels and vulnerabilities accumulated during the “low-for-long” period, it would not have been too far-fetched to also expect a significant increase in insolvencies and bankruptcies, or even a financial crisis“.
What could derail this proverbial soft landing? Carstens asked. “My main concern is that inflation rates may not return to target levels as quickly and as firmly as most forecasters expect,” he said. “As has been said many times, thelast mile might be the hardest yet. It is in this context that, while central banks have done their job by tightening monetary policy and curbing aggregate demand, the same cannot be said for fiscal policy.”