Pablo Hernandez de Cos, general manager of the Bank for International Settlements (BIS), has cautioned that the ongoing conflict in Iran is expected to 'drive inflation upwards and growth downwards' on a global scale [1]. In an interview, Hernandez de Cos emphasized that the inflationary pressures resulting from the Iran war could be further exacerbated if governments respond with overly aggressive fiscal measures [1].
He stated, 'Central banks must remain vigilant and prepared to act if needed,' referencing the potential for market volatility and the risk of inflation spiraling due to both geopolitical tensions and domestic policy choices [1]. Hernandez de Cos warned that while fiscal support might be necessary to mitigate the economic shock, authorities should avoid actions that could stoke further inflation, especially given elevated commodity prices and disrupted supply chains [1].
The BIS chief underscored the importance of coordination between fiscal and monetary authorities, advocating for a 'calibrated policy mix' to maintain macroeconomic stability as the situation evolves [1]. The interview highlights growing concerns within the international financial community about the dual risks of persistent inflation and slowing growth stemming from the ongoing Middle East conflict [1].
CONCLUSION
The BIS chief's remarks highlight significant concerns about the inflationary risks posed by the Iran war, especially if fiscal policy responses are not carefully calibrated. Central banks are urged to remain vigilant and coordinate closely with fiscal authorities to prevent inflation from spiraling and to support macroeconomic stability.