Central banks urged to get tough on inflation

A headline indicating a rise in interest rates in Australia in May 2006.

TEXT OF STORY

MARK AUSTIN THOMAS: The world body that acts as a forum for central banks has called for higher interest rates around the world. The Bank for International Settlements or BIS, based in Switzerland, is urging central banks like the Fed to get tough on inflation. From the European Desk in London, Stephen Beard reports.


STEPHEN BEARD: The BIS, dubbed the central bankers bank, paints a worrying picture in its latest report. It says that central banks may have kept interest rates too low for too long n the back of the falling price of imports from Asia.

But now, says the Bank, those import prices are no longer falling. Inflationary pressures are stirring. Neil McKinnon of the ECU fund management group:

NEIL MCKINNON: They think that interest rates should be going up quite generally and should be going up at a fast rate to ensure that inflation pressures which have been absent from the world economy for quite a while don't rear their ugly head again.

The BIS however warns that by holding interest rates so low for so long the central banks have allowed asset prices to surge and debt levels to rise.

This could end with either a bang or a whimper, a financial crash or a long period of low growth.

In London, this is Stephen Beard for Marketplace.

About the author

Stephen Beard is the European bureau chief and provides daily coverage of Europe’s business and economic developments for the entire Marketplace portfolio.

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