Central bankers must devise strategy for return to normal policy, BIS head says

imageEconomy9 hours ago (May 27, 2020 09:55AM ET)

(C) Reuters. Headquarters of the Bank for International Settlements are seen in Basel

By Brenna Hughes Neghaiwi

ZURICH (Reuters) – Central bankers must work to get monetary policy back to normal and create an exit strategy from aggressive measures “as soon as possible” to counteract high debt worldwide, the general manager of the Bank for International Settlements said on Wednesday.

A weak economic recovery and high levels of debt have persisted since the 2008-2009 financial crisis, and were only gradually being overcome, Agustin Carstens said during a virtual discussion hosted by Swiss bank UBS (S:UBSG).

Now, “this recession induced by the pandemic is putting a halt to the process of reordering,” Carstens said.

“More debt will be created and therefore additional efforts need to be put in place so that at some point in the future, monetary policy can return to a new normal,” Carstens said.

Aggressive measures undertaken by central banks and governments had preempted “disastrous” economic impact from the coronavirus pandemic, precluding a more difficult recovery down the road, he said. But high levels of debt, particularly government debt, would need to be reigned in eventually.

“At this very early stage, we have to start thinking about how to implement and make possible an exit strategy,” he said, adding such a strategy should be established as soon as possible. “At some point, central banks should start sending signals this will not last forever.”

Referring to the malaise of low growth across the globe, Carstens urged borders be kept open to stimulate trade and growth, calling tensions between China and the United States potentially costly for the future world economy.

“Of course, the dimension of China against the U.S. does not help. Those are the two largest economies in the world,” he said. “We do not need that type of noise at this particular stage.”

Central bankers must devise strategy for return to normal policy, BIS head says

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