Senior BIS Official Joins Calls for Fiscal Boost If Slowdown Worsens

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A senior official from the Bank for International Settlements has added his voice to those calling on governments to back up central banks with fiscal support.

In remarks published Sunday -- just days after central banks from the Federal Reserve to the euro zone cut interest rates to fight a worsening slowdown -- Claudio Borio said that monetary policy has very limited space, and may not be able to counter a deeper slump.

“The room for monetary policy maneuver has narrowed further. Should a downturn materialize, monetary policy will need a helping hand, not least from a wise use of fiscal policy in those countries where there is still room for maneuver.”

Claudio Borio, BIS Quarterly Review

That’s been a familiar refrain recently, with ECB President Mario Draghi among the most vocal, saying this month that it’s “high time” a fiscal effort kicked in to take at least some of the pressure off central bankers.

Borio, head of the monetary and economic department at the BIS, made his remarks in the institution’s latest Economic Review.

He’s long been an advocate of tighter monetary policy, and a year ago this week, he warned about exactly such a situation developing. He said that central bankers were overburdened after the global financial crisis and there was “little left in the medicine chest to nurse the patient back to health or care for him in case of a relapse.”

His is not the first call from the BIS for more coordinated action. In June, the Basel-based institution -- nicknamed the central bank for central banks -- used its annual economic report to urge politicians to “ignite all engines.”

The response so far has been patchy. Germany has come under particular criticism for not spending more, given its economy is at risk of recession and the country can borrow at negative interest rates.

The country announced a package on Friday to fight climate change, but there’s as yet no sign it will make preemptive move to revive growth. Chancellor Angela Merkel has said her government will react “depending on the situation.”

The Dutch government last week unveiled a proposal for a national investment fund that will take advantage of historically low interest rates and end an era of debt reduction in favor of fiscal stimulus.

To contact the reporter on this story: Fergal O'Brien in Zurich at fobrien@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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