The Swiss-based BIS — a meeting place and think tank for the world’s central banks — gave a gloomy outlook for both inflation and growth in its annual report, published after a three-day meeting of central bankers from over 100 countries.
BIS General Manager Malcolm Knight said central banks faced their greatest challenge in years, with growth slowing even as inflation pressures intensified.
"With inflation a clear and present threat, and with real policy rates in most countries low by historical standards, a global bias towards monetary tightening would seem appropriate. "In the aftermath of a long credit-driven boom, it would not be surprising to see turmoil in financial markets, slowing real growth and temporarily rising inflation," it said.
Knight, who leaves the BIS in September, said forecasts that current high inflation in industrialized countries was a temporary blip could not be fully trusted because of a significant rise in consumers’ inflation expectations and past failures in accurately predicting rising commodity prices.
Then there was the general fallout from the credit squeeze and rising oil and commodity prices, the BIS added.
Analyzing how central banks had reacted to the crisis, the BIS said that most — including the European Central Bank, Bank of Japan and Bank of England — appeared to have set rates on the same criteria as before the crisis.
The BIS repeated its call that central banks and regulators should do more to curtail future credit booms.
* For a copy of the report and Knight’s speech, go to http://www.bis.org