BIS: debt now bigger problem than inflation

The main structural threat to global economic growth is no longer runaway inflation, but a slower rebalancing of excess debt, according to a working paper released by the Bank for International Settlements (BIS).

The paper, 'Monetary and prudential policies at a crossroads', by BIS head of research and policy analysis Claudio Borio, says financial liberalisation, globalisation, and more effective inflation control by central banks, mean the main structural risk to the economy is now a more progressive build-up of financial imbalances, rather than sudden inflation-led shocks.

Borio’s paper recommends policymakers respond by ensuring more cautious behaviour during economic upswings, and by improving the measurement of system-wide risks. Monetary authorities may also need to tighten policy when financial imbalances build up, even if short-term inflationary pressures are subdued.

While the paper concludes many policymakers have moved in this direction, it emphasises that there is still more work to be done.