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Monetary policy timing key to global economic recovery
The Jakarta Post spoke with Bank for International Settlements (BIS) general manager Agustin Carstens about global inflation, rising interest in crypto and digital currencies and Indonesia’s Group of 20 presidency this year.
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Bank for International Settlements general manager Agustin Carstens talks to The Jakarta Post during an online interview from Basel, Switzerland, on Feb. 8. (JP/-)
Aem>As the world recovers from pandemic-induced economic recessions, a number of countries have experienced high inflation and rising food and energy prices. The Jakarta Post's Dzulfiqar Fathur Rahman and Adisti Sukma Sawitri spoke with Bank for International Settlements (BIS) general manager Agustin Carstens about this inflation, rising interest in crypto and digital currencies and Indonesia’s Group of 20 presidency this year. As a bank for central banks, the BIS has played an important role in the global financial system since 1930. The following are excerpts from the interview.
Question: What are the top risks that central banks, especially those in emerging markets, face as policy is normalized during the global recovery this year?
Answer: As the pandemic seems to be entering into a more controllable phase, […] we have seen in some countries, some inflation surprises, most of which should be considered transitory. In the US, we have inflation that has gone all the way to 8 percent. That has required the US and other advanced economies to gradually increase their interest rates, as their [central bank] governors have pointed out. And given the importance of global liquidity, that will affect emerging market central banks.
Central banks in emerging markets, of course, need to worry about inflation. Each one is facing its own problems because local conditions are also important. But I would say that for emerging markets as a whole, they were able to implement aggressive monetary policies starting two years ago, just because the level of interest rates around the world economy was low or was falling.
Now, when interest rates are going up, they will have to start tightening monetary policy to prevent instability in their exchange rate market and also to rein in inflationary pressures. A key aspect is to prevent destabilizing capital outflows.
Timing here is of the essence because [...] you don’t want inflationary pressures to take off but at the same time, you don’t want to [unduly affect] the recovery of economic activity.
