BIS Says Central Banks Need to Learn to Live with Low Inflation

Central banks should learn to live with inflation rates that persistently miss their targets rather than fuel debt with increasingly aggressive stimulus policies, a top economist at the Bank for International Settlements said on Wednesday.

Major central banks across the developed world have pushed interest rates to zero or below and printed trillions of dollars to stimulate their economies, driving bond yields to record lows but failing to significantly boost inflation.

Claudio Borio, head of the monetary and economic department at the BIS and a long-standing sceptic of ultra-easy policies, said central banks may need to give themselves more time to reach their inflation goals because their policies may threaten long-term economic stability.

“It is quite possible that a financial stability-oriented monetary policy may require greater tolerance for persistent deviations of inflation from target,” he told a central bankers’ gathering in Vienna.

“Such a policy does not require changing mandates… but it may require at least refinements in how the mandates are put into practice, including the horizon for achieving inflation objectives.”

Despite printing over a trillion euros ($1.12 trillion) and adopting a range of measures to stimulate lending, the European Central Bank has missed its target of almost 2 percent inflation for over three years.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza