The return to inflation in the world means that real interest rates need to rise into positive territory, but with historically high levels of debt, such a move by central banks will not be popular, the Bank for International Settlements’ (BIS) head Agustín Carstens warned.
“Most likely, this will require real interest rates to rise above neutral levels for a time in order to moderate demand,” Carstens said in the speech, delivered at the International Center for Monetary and Banking Studies in Geneva, Switzerland.
Carstens further warned that such a transition would not be easy nor popular.
“In many countries, starting conditions complicate matters. Households, firms, financial markets and sovereigns have become too used to low interest rates and accommodative financial conditions, also reflected in historically high levels of private and public debt,” the BIS boss said.
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