The Bank for International Settlement says that the global economy and financial system are demonstrating, “resilience to mounting strains”.

The comments came in its 76th annual report, released today. “Over the last year, the global economy has powered on, amid growing concerns about inflationary pressures,” it says. “As a result, policy stances that had previously contributed to extremely easy monetary conditions worldwide have begun to be modified. This has included further monetary tightening in the United States and Europe, the end of “quantitative easing” in Japan, and the announced change in China’s exchange rate regime.”

“The good news is that these moves had not, as of late May 2006, been accompanied by any widespread stress in global financial markets even though volatility has recently risen and some asset prices have fallen sharply,” it notes.

In presenting the annual report to meeting participants, Malcolm Knight, BIS General Manager, noted that “uncertainties about inflation and asset prices mean that, at the current juncture, central banks need to be especially vigilant towards the threats to medium-term price stability”.

He added that governments also have work to do to ensure steady non-inflationary growth and fiscal sustainability in the years ahead. Fiscal restraint, particularly in countries which have large current account deficits, would be desirable, Knight said. Structural reforms to facilitate internal adjustments between the tradable and non-tradable sectors in most large countries would also be helpful, he added.

Jean-Pierre Roth, chairman of the BIS board, presided over the bank’s annual general meeting, held in Basel, Switzerland today. It was attended by representatives from more than 120 central banks and international institutions.

The BIS reported a balance sheet total of US$317 billion at the end of March. Nearly US$270 billion of official foreign currency reserves are deposited with the BIS, around 6% of the world’s total. The Bank also reported a net profit of US$864 million for last year. The Bank’s shareholding central banks will receive a dividend increase of 4.2% increase over that for the previous financial year.