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LONDON: The world’s central bank umbrella body, the Bank for International Settlements (BIS), called on Sunday for more interest rate hikes, warning the world economy was now at a crucial point as countries struggle to rein in inflation.

Despite the relentless rise in rates over the last 18 months, inflation in many top economies remains stubbornly high, while the jump in borrowing costs triggered the most serious banking collapses since the financial crisis 15 years ago.

“The global economy is at a critical juncture. Stern challenges must be addressed,” Agustin Carstens, BIS general manager, said in the organisation’s annual report published on Sunday. “The time to obsessively pursue short term growth is past. Monetary policy must now restore price stability. Fiscal policy must consolidate.”

Claudio Borio, the head of BIS’s monetary and economics unit, added there was a risk an “inflationary psychology” was now setting in, although the bigger-than-expected rate hikes in Britain and Norway last week showed central banks were pushing “to get the job done” in terms of tackling the problem.

Their challenges are unique by post-World War Two standards though. It is the first time that, across much of the world, a surge in inflation has co-existed with widespread financial vulnerabilities.

The longer inflation remains elevated, the stronger and prolonged the required policy tightening, the BIS report said, warning that the possibility of further problems in the banking sector was now “material”.

If interest rates get to mid-1990s levels the overall debt service burden for top economies would, all else being equal, be the highest in history, Borio said.

“I think central banks will get inflation under control. That is their job – to restore price stability,” he told Reuters. “The question is what will the cost be.”

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