The Bank for International Settlements (BIS) on Monday, March 4, said that financial regulators in many countries of the world are on the verge of victory in the struggle to resume control over the surge in inflation, which has become excessive and is transforming into a kind of autonomous trend.
The latest BIS quarterly report contained conclusions and statements that can be described as a kind of platform for cautious optimism about the prospects of central banks as part of efforts to counter the rising cost of goods and services. In this case, a symbolic situation has formed when there is light at the end of the tunnel, but it has yet to be approached.
It is worth noting that some experts and analysts call BIS the central bank of central banks. This conditional name is because representatives of the mentioned organization regularly hold so-called backstage meetings with those who participate in the creation of the monetary policy concept of the world’s largest financial regulators.
Claudio Borio, head of the BIS Monetary and Economic Department, says that central banks have taken decisive measures, as a result of which the transformation of inflation into a sustainable process and an economic reality that has been dominant for a long period has been prevented. He gave an appropriate assessment of the effectiveness of financial regulators’ actions during a conversation with media representatives.
Claudio Borio also said that economic activity has recently demonstrated amazing resilience. Moreover, he positively characterized the state of the financial system.
BIS is currently demonstrating a steady increase in the optimistic mood regarding the vision of the global economic dynamic outlook. At the end of last year, representatives of this organization said that progress in curbing inflation was encouraging. However, at that time it was noted that central banks central banks were not out of the woods.
BIS stressed the point that economic risks persist. At the same time, Claudio Borio noted that there is currently a trend of the so-called narrowing of daylight between what the markets expect concerning the prospects for changing monetary policy towards the start of implementing decisions to reduce interest rates, and what central banks are signaling. Separately, he highlights the fact that the markets have reached a consensus on the alleged actions of financial regulators. According to him, this is evidence that central banks have improved their risk assessment.
The BIS report also drew attention to the sustainability of inflation. Furthermore, the organization has considered what neutral borrowing rates will be in economies in which the relevant indicators are neither too soft nor overly restrictive, as impact factors such as population aging and deglobalization increase. Moreover, in this case, the fact that recovery from the coronavirus pandemic has already begun was taken into account.
The BIS report concludes that inflationary pressures may become more sustainable as the scale of the impact of the services sector on the economic system as a whole increases. It is worth noting that this is a preliminary vision, which is not a guaranteed scenario.
Hyun Song Shin, head of the BIS research department, says that the current guideline in the ongoing general context is so blurry that it will be very difficult to use it in a specific way when conducting monetary policy.
Besides, the BIS report contains a partial warning about the rapid growth in the share price of so-called heavyweight companies in the advanced technology sector. This statement applies more to those firms that operate in the artificial intelligence industry or come into contact with the corresponding area in certain ways.
Shares of Nvidia, which is the largest developer of chips needed for training and subsequent operation of machine intelligence systems, have risen in price by 66% since the beginning of 2024. Last year, the value of the company’s securities increased by almost 240%. The shares of Meta, which is also actively involved in the artificial intelligence industry, have risen in price by about 140% over the past 15 months.
Claudio Borio, commenting on the current economic realities of players in the technology sector, noted that whenever there are big changes in the relevant area or a corresponding period is approaching, there is a huge enthusiasm that provokes rapid market activity. In his opinion, the probability of this scenario is high. It is worth noting that the revival associated with the development of AI is already being recorded in the market. In the case of some companies, the corresponding trend has already caused what can be symbolically described as an incredible takeoff.
There was also an increase in market interest outside the technology sector. Claudio Borio noted that against this background, investors have formed an expectation of the implementation of the scenario of a soft landing of large economies.
As we have reported earlier, BIS to Focus on Cybersecurity, CBDCs and Green Finance in 2024.
