BIS urges tightening of monetary policy

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BASEL, June 25 (AFP): The global economy is in good health but monetary policy should be tightened to forestall risks from a possible US slowdown, inflation and capital markets volatility, the Bank for International Settlements (BIS) said yesterday.
In its annual report, the central bank of central bankers said that the strength of the global economy "surprised again" in 2006, and that the consensus view is for continuing broad-based expansion in 2007, albeit at a slightly slower pace.
"Global growth was strong and there were even welcome signs of better balanced demand. The US economy slowed somewhat, largely due to a weaker housing sector, while domestic demand in Europe, Japan and a number of emerging market economies picked up," the BIS said.
The bank cautioned however that the full impact of the US housing downturn may not yet have been fully felt.
"When cuts in construction jobs begin to match the much larger fall in housing starts to date, then wage income, job security and confidence could be further affected ... the stage might be set for a more significant and perhaps unwelcome deceleration in US growth" it warned.
The bank highlighted three other potential areas of concern for the global economy, namely: a possible rise in global inflation, the risk of financial market volatility from global current account imbalances, and the fear that any unwelcome shock could have unexpected consequences given that most asset markets are already "priced to perfection".