He said the steep rise in interest rates following a mini-budget with £45bn of unfunded tax cuts showed the importance of a “coherent policy mix” between central bankers and politicians.
“If you have a monetary policy with an anti-inflationary stance, if you have doubts about whether fiscal policy will drive inflation, you run the risk of creating a vicious circle,” he said.
He called on the Financial Stability Board (the G20 body that oversees the financial system) to come up with a clear regulatory framework to ensure that funds and actors build adequate liquidity buffers.
“We need more data and we need some sort of liquidity stress test in every jurisdiction,” he said.
He compared it to the panic in money markets at the start of the pandemic and the lack of collateral for energy companies after the Russian invasion, which is generally about liquidity outside the banking sector.
For the eurozone, he said, as long as energy support measures are targeted and temporary, they can help curb inflation.
He sees the ECB raising interest rates quickly to 2 percent, which many see as the neutral level, and then taking a more flexible and slower stance.
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