The head of the Global Banking Body “Bank for International Settlements (BIS)” has issued a warning that the credibility and independence of central banks worldwide are at stake if persistently high global inflation rates are not effectively controlled.

Agustín Carstens, the general manager of the BIS, emphasized the need for a strong response to inflation in order to maintain trust in central banks’ ability to stabilize economies. Speaking in Brazil, Carstens highlighted that the erosion of living standards due to inflation is a new experience for many younger generations in various countries.

Carstens further explained that once inflation takes hold, it becomes increasingly challenging to rein it in. He emphasized the importance of cooling price pressures to preserve the credibility of monetary policy and the autonomy of central banks responsible for its implementation. He warned that without trust, the capacity to enact effective public policies diminishes.

Carstens’ remarks coincide with signs of a potential end to one of the fastest and most comprehensive increases in global borrowing costs in history. Financial markets are indicating a strong possibility of the US Federal Reserve, which has been leading the global rate hikes for the past 18 months, starting to reduce interest rates toward the end of this year.

In addition to the inflation issue, Carstens stressed the significance of maintaining trust not only in central banks but also in the banking sector as a whole. He expressed concerns about the rise of cryptocurrencies, the risk of a “two-tier” monetary system, and the expanding role of non-traditional banking entities.

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