HSBC CEO calls for higher rates to fight inflation

The chief executive of Europe's biggest lender on Tuesday called on central bankers to raise interest rates in order to combat inflation, and said more regulation may be needed in the wake of the credit crunch.

• Michael Geoghegan, group chief executive at London-based HSBC Holdings said central banks were not yet committed to taming inflation, and predicted U.S. interest rates would rise after the U.S. presidential election in November.
• “Inflation is a long-term problem because there is no long-term will to solve it,” Geoghegan said during a speech organized by the Asia Society in Hong Kong.
• In a number of economies, central banks have either cut interest rates or kept them low to support growth at a time when lending between banks has stalled and housing markets around the world have plummeted.
• However, energy and food prices have surged, feeding inflation and crimping consumer spending. For example, since a flood of homeowners defaulting on their mortgages snowballed into a credit crisis last summer, U.S. consumer inflation has risen from an annual rate of 2 percent to 3.9 percent in April.
• Geoghegan also said the investment banking model would need to be changed over time to avoid a repeat of the past year’s credit crunch.
• “I’m not a great fan of regulation…but there will be a need to look at the model in that area,” he said, adding that banks should focus on lending and investment advisors on advising clients, although he did not call for any specific measures.
• “The investment banking model is flawed,” Geoghegan said.
• “If banks aren’t strong, they should be restructured or taken over,” he added.