LONDON: The head of the Bank for International Settlements (BIS) Agustin Carstens called on the leading central banks to save ammunition for a more serious economic crisis, rather than exhausting it, seeking greater growth.
Presenting the BIS annual report, headquartered in Switzerland, called the central bank for the central banks in the world, Carstens told reporters that it is necessary to make it easier to consider and make it more economical.
"We would emphasize that it is important to keep room for maneuver for a more serious crisis," he said.
This message comes only a few weeks before the US Federal Reserve is expected to confirm the turnaround in global monetary policy and reduce interest rates for the first time since the financial crisis ten years ago.
Both Japan and China both signaled their willingness to further mitigate, and the European Central Bank, which just stopped buying bonds in December, said this month that it could lower its rates even deeper in the negative area.
While the US and China trade tensions this year burdened economic sentiment, many developed countries recovered to potential or above potential growth rates, Carstens said. Inflation was not so far from the target range.
This is the question of how future central banks should be with additional accommodation.
"Monetary policy should be seen as a trademark rather than the main strategy of stimulating more sustainable growth," Carstens said.
He also warned that due to the sustainable use of policies such as negative rates or quantitative easing, they are reduced. "How much more incentive will you get if the rates are reduced by another 25 basis points? This will produce a lower profile for this money," Carstens said.
The message about the preservation of firepower from BIS is not surprising. Until this year, it encouraged the leading central banks to continue to raise rates or at least move away from stimulus programs from the crisis period.
The primary call to the annual report was to achieve a better balance between monetary policy, structural reforms, government fiscal policy and macroprudential measures involving regulation of banks and other financial institutions.
Carstens also said that a possible short-term gain from lowering borrowing costs must be balanced with "potential risks in terms of misallocation of assets and misinterpretation of assets and the risks of financial stability as we move forward."
Sharp changes in the direction of Feda and others this year have led to global rocket launches since January.
Last year's large drop in European, Asian, and American shares was replaced by a nearly 20 percent jump on the S & P 500 and the largest Chinese markets, reviving the hope that a decade-long global bulls might not have ended.
Global stocks have resumed for about $ 8 trillion, emerging markets went well while the Chinese economy discovered cracks, but yields to ultra-secure government bonds such as the US Treasury and German Bundi dramatically dropped.
INDEPENDENCE AND INDEPENDENCE
Claudio Borio, head of the BIS Monetary and Economic Policy Department, admitted that the markets became dependent on adaptable monetary policy and deterred them from the addiction that could cause "withdrawal symptoms".
Following the fierce criticisms of the Federal Reserve of US President Donald Trump, he also stressed the importance of the independence of the central bank.
"The autonomy of central banks is an important asset and it is an advantage that is exposed to threats when it is most needed," he told Reuters.
"Of course these are politically challenging moments for central banks, but obviously it is not useful to try to interfere with their decisions."
Another warning from the annual report was the rapid accumulation of corporate debt through collateralised credit obligations (CLO) and other forms of credit that did not pass through normally regulated banking channels.
He had "some warning lights," Carstens said, similar to the steep rise in collateralized debt obligations (CDOs) that have boosted the US subprime crisis more than a decade ago. However, the banking sector is better capitalized, he said.
For a full report click here: https://www.bis.org/publ/arpdf/ar2019e.htm
(Report by Marc Jones; Editing Catherine Evans)