With all the disagreements that exist over the best solution to sovereign debt woes and other issues that threaten to send the global economy into another tailspin, nobody really needs to hear mixed messages coming out of the professionals who run the global banking system. But that’s what is being issued by Bank of England policy makers and their counterparts at the Bank of International Settlements.
As Canadian Business staff writer and chief inflation correspondent Rachel Mendleson has pointed out in numerous blogs on this site, consumer prices have been rising fast enough to make some economists squirm. Expressing concern over the impact of loose credit on inflationary pressures, the BIS is now calling for tighter monetary policy across the board.
“Tighter global monetary policy is needed in order to contain inflation pressures and ward off financial stability risks,” the Basel-based central bank of central banks warned in its most recent annual report. “Central banks may have to be prepared to raise policy rates at a faster pace than in previous tightening episodes.”
But as Bloomberg reports, Bank of England policy maker Adam Posen responded by calling the BIS’s take on inflationary threats to the global economy total “nonsense.”
The BoE held its key policy rate at a record-low in June, despite inflation levels that sit well above the central’s bank target. Maintaining loose credit is meant to support the fragile recovery of the British economy. As Posen pointed out during a speech in Aberdeen, Scotland, there is generally “little or no credit growth, little wage growth beyond productivity, little evidence of rising inflation expectations” in Western economies. Meanwhile, “oil prices are not yet a one-way bet.”
Nevertheless, the BIS is now openly wondering if the U.K.’s failure to adjust interest rates upward from 0.5% can be sustained without causing more harm than good.
No wonder Nanos Research now reports that Canadian confidence in our country’s economic prospects has hit its lowest point in 24 months despite the relative heath of our nation’s financial affairs.