Central banks should keep raising rates: BIS's Knight

"Even so, it is hard not to detect in the current climate that sense of exuberance, even hubris, that in the past has not augured well for subsequent developments."

GOING FINE

Top officials from the U.S. Federal Reserve, ECB, BOJ and People's Bank of China attended the weekend meetings in the Swiss city of Basel, as well as representatives from more than 100 other central banks.

Policymakers attending the meetings also expressed optimism about the world economic outlook.

"Everything is going fine," ECB Governing Council member Yves Mersch said when asked about the global economy.

Several, including Mexico's Guillermo Ortiz and Portugal's Vitor Constancio, said this was the main reason for the recent tumble in bond markets, which sent yields on 10-year U.S. and euro zone debt to five-year highs.

"It reflects mostly the assessment of markets of the strength of growth in developed countries and not so much fears of inflation in the future," Constancio said. "Medium-term real rates increased as a consequence, which is good for inflation in the medium term."

Knight agreed that the rise in real -- inflation-adjusted -- market rates could be beneficial for inflation, helping to stabilize asset prices.

But policymakers also underlined concerns about upside risks to prices. Ortiz and Argentine central bank chief Martin Redrado said the strong rise in soft commodity prices was a new risk factor.

"We haven't seen yet a strong pass-through, especially in developed economies, but it is a factor that needs to be monitored closely," Redrado said.