By Leika Kihara

TOKYO (Reuters) -Governments across the globe must curb their "relentless" rise in public debt as higher interest rates make fiscal paths for some countries unsustainable, Agustin Carstens, General Manager of the Bank for International Settlements said on Tuesday.

Large deficits and high debt appeared sustainable when interest rates were kept low after the global financial crisis, allowing fiscal authorities to avoid making hard choices such as cutting spending or raising tax, he said.

"But the days of ultra-low rates are over. Fiscal authorities have a narrow window to put their house in order before the public's trust in their commitments starts to fray," Carstens said in a speech delivered at a conference hosted by the Bank of Japan in Tokyo.

"Markets are already waking up to the fact that some paths are not sustainable," he said, warning that financial markets could suddenly destabilise in the face of large imbalances. "That is why fiscal consolidation in many economies needs to start now. Muddling through is not enough."

The warnings came in the wake of recent steady rises in bond yields in the United States, Japan and Europe, driven in part by market expectations that their governments will ramp up spending funded by increased debt.

Defaults on public debt can destabilise the global financial system and threaten monetary stability as central banks may be compelled to finance government debt, leading to fiscal dominance over monetary policy, Carstens said.

"The result would be rising inflation and sharp exchange rate depreciations," he said. "In light of these considerations, it is essential for fiscal authorities to curb the relentless rise in public debt."

The BIS aims to foster international monetary and fiscal cooperation among central banks and to serve as a bank for central banks.

Carstens said many countries will face pressure for more public spending due to population ageing, climate change and higher defense spending.

"Fiscal authorities must provide a transparent and credible path to safeguard fiscal solvency, ideally underpinned by stronger fiscal frameworks. They must then follow through on their commitments," he said. "Central banks cannot be the only game in town."

For monetary policy, Carstens said central banks should not be expected to stabilise inflation "at very short horizons and within narrow ranges."

"This is particularly important because, as recent events have shown, inflation will partly depend on factors that are not under central banks' control," he said.

(Reporting by Leika Kihara)