According to FT, the Bank for International Settlement has said,.global governments should either raise taxes or cut public spending to help central banks tame inflation and mitigate the risk of a financial crisis. This virtually means BIS admits further monetary measures look increasingly helpless to cope with the task. Traditionally there has been a separation between fiscal policy, set by governments, and monetary policy, set by central banks and targeted to control inflation, while taking account of the levels of public spending and taxation.

“[Fiscal] consolidation would provide critical support in the inflation fight,” the BIS said in its annual report, published on Sunday, June 25. “It would also reduce the need for monetary policy to keep interest rates higher for longer, thereby reducing the risk of financial instability.”

The chances of a financial crisis are significant given that interest rates are high and still rising, the BIS said. However, it added that these risks could be reduced if governments tightened fiscal policy, taking some pressure off interest rates as the primary policy tool and strengthening countries’ public finances.

Central bankers have insisted that they are confident in their abilities to separate monetary policy decisions from financial stability concerns, but the BIS’s concern contrasts with those assurances.