The Bank of International Settlements said that the Central Banks should raise interest rates in its Annual Report published yesterday.

The key takeaways from the speech of the General Manager Mr. Jaime Caruana at the time of presentation of the annual report are as under:

The world economy is growing at a respectable rate of around 4 percent. Output in some countries has reached its pre crisis level despite growth being slow and uneven.

The resurgence of demand has put the fears of deflation behind us and therefore the need for continued monetary accommodation has faded. Inflation has risen a full percentage point to 3.6% since April last year.

The welcome recovery and absorption of spare resources have brought with them the less welcome spectre of Inflation. The prevailing, extraordinary accommodative policy rates will not deliver lasting monetary and financial stability. Real short term interest rates have fallen in the past year, from minus 0.6 percent to minus 1.3 percent globally.

Extraordinarily loose financial conditions may have undesirable side effects.  Low interest rates can delay balance sheet repair, encourage dangerous risk taking in segments of financial markets and in the process, make the eventual exit from financial support more hazardous. They can intensity investors to place funds in booming emerging markets and build up financial imbalances there. The more active deployment of macro prudential tools in emerging market economies is welcome, but cannot substitute for monetary tightening.

Recoveries from financial crisis are slower and less robust than before. It takes longer for debt burdens to fall, balance sheets to be repaired, unproductive capital to be scrapped and labour to be reallocated.  Policymakers should not hinder this inevitable adjustment,

Double digit growth in US dollar loans to Non-US residents is signaling cheap credit being provided where central banks have tightened

Economies and the financial systems are still vulnerable to even modest shocks, and the likelihood of severely adverse developments has not decreased. In the advanced economies overall deleveraging and structural adjustment is still incomplete. Excess capacity remains in the financial and construction sectors. The repair of private balance sheets still has some time to go.

Some emerging market economies reflect the similar signs of rising financial vulnerabilities, as domestic credit and asset prices surge.

The General Manager Mr. Jaime Caruana summed up saying that the corrective policies of the economies world wide to tackle the crisis whether fiscal, monetary, structural and prudential should contribute to the lasting foundation for robust, stable and sustainable growth. The policies should be a part of a broader, integrated framework in which policymakers act promptly both with a long term perspective- paying modest costs today to avoid larger costs tomorrow – and with attention to the global repercussions of their policies. And in the end Co-operation will make everyone better off.