Governments around the world should raise taxes or cut public spending to help central banks tame inflation and mitigate the risk of a financial crisis, the Bank for International Settlements has said.
The central bankers’ bank, which often operates as an informal mouthpiece for the institutions, said governments were “testing the boundaries of what might be called the region of stability” by leaving fiscal policy loose while inflation remains high and interest rates are rising rapidly.
“[Fiscal] consolidation would provide critical support in the inflation fight,” the BIS said in its annual report, published on Sunday. “It would also reduce the need for monetary policy to keep interest rates higher for longer, thereby reducing the risk of financial instability.”