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"We need policies that we will not once again regret when the future becomes today," the Bank for International Settlements (BIS) says in the report, which describes a broad-based economic realignment as financial cycles mature, commodity prices fall, the dollar strengthens and global liquidity starts to tighten.
In its flagship economic report, the BIS argues that growth rates are not far from historical averages. Still, it identifies a risky combination of unusually low productivity growth, historically high global debt and shrinking room for policy manoeuvre, which leaves the global economy highly exposed, not least to shocks and political risks.
The BIS authors look at concerns about the declining impact of monetary policy on the domestic economy and the increasing prominence of external channels of transmission, such as exchange rates. They examine the merits of a financial stability-oriented monetary policy and conclude that leaning against the wind brings the greatest benefits when monetary policymakers take financial stability into account all the time, during both booms and busts.
Other new research in the Annual Report discusses anomalies in financial markets; how financial risk-taking can undermine the traditional impact of currency moves on an economy; the role of global value chains in the globalisation of inflation dynamics and the treatment of sovereign debt on banks' balance sheets.
The BIS's financial results, which were also published in the Annual Report, included a balance sheet total of SDR 231.4 billion at end-March 2016 and a net profit of SDR 412.9 million.