By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Counicl member Olaf Sleijpen said on Tuesday that rapidly rising government debt could constrain central banks' ability to combat inflation, noting that concerns about debt sustainability could make interest rate hikes more difficult to implement effectively.

In a speech during a discussion in the Dutch House of Representatives on risks to the financial system, Sleijpen, who heads De Nederlandsche Bank, said that growing public debt levels worldwide were becoming a source of concern, particularly at a time of elevated geopolitical and economic uncertainty.

"I am also concerned that government debt is increasing rapidly worldwide," he said. "This can put central banks' policy space under pressure."

According to Sleijpen, the interaction between fiscal sustainability concerns and monetary policy could complicate efforts to restore price stability.

"If interest rate hikes raise concerns about debt sustainability and create unrest in financial markets, it becomes more difficult to combat inflation effectively," he said.

He noted that maintaining healthy public finances was therefore essential, both in the Netherlands and elsewhere in Europe, especially in countries where deficits and debt levels are rising.

The Dutch government's debt burden remained relatively low, but the country's fiscal position was deteriorating and budgetary room to absorb future shocks was shrinking, he said.

Preserving fiscal buffers was particularly important during periods of heightened uncertainty, he said.

Sleijpen said risks to Dutch financial stability remained elevated because of persistent political and economic uncertainty, highlighting geopolitical tensions, cyber threats and the possibility of a correction in financial markets as the main near-term risks facing the financial system.