The Bank for International Settlements (BIS) warned yesterday that policy-makers were ill-equipped to deal with rapid global economic expansion and could be vulnerable if market sentiment suddenly turned.
BIS president Urban Backstrom, presenting the bank's annual report to the governors of 49 central banks which are shareholders of the BIS, said the present high level of asset prices was a particular worry.
'We have witnessed too many crises in the last decade not to know that market confidence can shift suddenly,' he said.
'A soft landing is by no means assured. But we can improve the chances of a soft landing by appropriate monetary and fiscal policies, and by implementing further structural reforms.' Releasing its 70th annual report, the BIS said advances in technology and continuing deregulation meant that rapid growth, along with continuing low inflation, was now a reasonable expectation, and that the recent economic success seen in the US was likely to be more broadly shared.
'Yet, even if this longer-term vision is accepted, policy-makers can still expect a few bumps along the way,' the BIS said.
The availability of credit had grown rapidly, leading to a higher capacity for risk, and liquidity had sometimes fallen noticeably in some financial markets.
