With debt-fuelled growth model spawning global economic vulnerabilities, there is an urgent need for having policies that will not be a cause of regret in future, says Bank for International Settlements (BIS).
In its latest annual report, BIS has called upon banks to keep adjusting their business models to the new market environment and address legacy problems, including that of non-performing loans.
While the report was prepared much earlier, the observations assume significance against the backdrop of Britain deciding to leave the 28-nation European Union -- a development that has rattled global financial markets.
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Known as the bank of central banks, BIS said there is an urgent need to re-balance policy in order to shift to a more robust and sustainable expansion.
"A key factor in the current predicament has been the inability to get to grips with hugely damaging financial booms and busts and the debt-fuelled growth model that this has spawned," BIS said.
"It is essential to relieve monetary policy, which has been overburdened for far too long."
According to the report, re-balancing is must as financial cycles mature, commodity prices fall, the dollar strengthens and global liquidity starts to tighten.
The annual report -- for the period from April 1, 2015 to March 31, 2016 -- has underlined the need for stepping up structural reforms with a firm long-term focus.
"We badly need policies that we will not once again regret when the future becomes today," it noted.
Against the backdrop of rising global economic uncertainties, BIS said growth rates are not far from historical averages.
However, it has flagged worries about 'risky trinity' -- unusually low productivity growth, historically high global debt levels and narrow room for policy manoeuvre.
Such a scenario leaves the "global economy highly exposed, not least to shocks and political risks", BIS observed.
Making a case for stronger banking system, the report said banks need to keep adjusting their business models to the new market environment.
"This includes addressing legacy problems such as those related to non-performing loans -- an adjustment that will have to take place in challenging macroeconomic conditions linked to low, or even negative, interest rates," it added.
BIS' flagship report said lower oil and other commodity
prices have not yet triggered the expected fillip to growth in importers, possibly because some parts of the private sector are still nursing weak balancesheets.
"The scars of repeated financial booms and busts and debt accumulation also hang over global potential growth. Factor misallocation appears to be holding back productivity, with debt overhang and uncertainty seemingly restraining investment," it noted.
Hyun Song Shin, Economic Advisor and Head of Research at BIS, said a broad-based realignment of the global economy is being witnessed as the debt cycle has matured in emerging market economies.
Besides, commodity and financial markets have been pulled to and fro by the ebb and flow of global liquidity, he added.
"It is tempting to see these developments as separate shocks, but they are outward manifestations of the same underlying cause -- the maturing of the debt cycle in emerging market economies and readjustment of global economic forces that is entailed by the turn of this cycle," Shin noted.
According to him, the impact of global realignment is most evident in the large adjustments of exchange rates, especially for emerging market currencies against the US dollar.
