Edward Scicluna: Central banks on the way out of the Covid-19 crisis but facing new global challenges Speech by Mr Edward Scicluna, Governor of the Central Bank of Malta, at the 2022 Conference of Mediterranean Central Banks "Building resilience in uncertain times: safeguarding financial stability, encouraging investments", jointly organised by the Central Bank of the Republic of Turkey, the Organisation for Economic Co-operation and Development (OECD), the European Institute of the Mediterranean (IEMed) and the Bank of Spain, Session "Central banks on the way out of the Covid-19 crisis but facing new global challenges", Istanbul, 31 October 2022. *** Fellow governors, ladies and gentlemen I would like to thank our host, Governor Kavcolu and his team, the OECD, IEMed, and the Bank of Spain for their invitation and for their warm welcome. I have come to share my views at this Seventh Annual Conference of Mediterranean Central Banks on the challenges we monetary policymakers are facing in the current macroeconomic and geopolitical environment, because as Mediterranean countries we have an obligation to explain our respective position and its relevance to our region. Because financial instability in any one country does not help the attractiveness of the whole region in the eyes of the investor. Let me start with what is relevant to any Central Banker wherever he or she comes from. I think that what is sharply standing out today is the sharp trade-offs confronting us central bankers. The biggest being that between containing inflation and avoiding a recession.
And in spite of the uncertainty surrounding the outcomes, the decision cannot be put off, since a wait-and-see approach is likely more costly, and certainly riskier. What is the price of not tackling inflation decisively? That we know. The high tax on the disadvantaged, on those on fixed incomes, incentivising rent seekers, the waste of dog chase tail wage-price spirals. At the same time we hear that a recession is not just around the corner but on our door step. We hear that certain indicators are also giving out the message that certain prices have peaked and some are even falling. So why all this unrelenting rush to kill off inflation when the recession has started to do the work itself. Let us be careful. My understanding is that the financial markets and economic forecasters do not believe that the recession as seen today will be so deep that it will do all our work. For inflationary expectations not to be anchored at levels where we do not want them, we need a more resolutive anti-inflationary policy measures. 1/4  BIS - Central bankers' speeches  The reason for taking this stance issupported by the currentsituation that fiscal policy this time around will not be in synch with the restrictive policy taken by Central banks. Driven by social pressures to cushion families hit by fuel and food shortages accompanied by astronomical price increases, governments are responding with subsidies of all sorts but mostly aimed towards fuel and food prices.