Although decisive actions by policymakers in response to a series of bank failures eased investor concerns, Financial markets are still fragile and tense – says the International Monetary Fund’s semi-annual Global Financial Stability Report, published on Tuesday.
The International Monetary Fund stated that “the resilience of the global financial system has been seriously tested”.
It is not yet known whether the measures taken so far are sufficient to fully restore confidence in markets and institutions.
In the US, authorities have taken extraordinary steps to stem the contagion by guaranteeing all deposits of Silicon Valley Bank and Signature Bank after the bankruptcy of Silicon Valley Bank and Signature Bank, and by creating a new facility at the Federal Reserve to provide more liquidity to the system. Meanwhile, the Swiss authorities organized and supported UBS’ takeover of the crisis-stricken Credit Suisse bank. bloomberg.
The International Monetary Fund released the report shortly after it updated its global economic outlook. Among them, it predicted a decline in global growth and warned of a high degree of uncertainty and risk since then
The stress in the financial sector is exacerbated by the tightening of monetary policy and the Russian invasion of Ukraine.
In a blog post accompanying the Financial Stability Report, Tobias Adrian, the IMF’s chief official, also hinted that investors are very bullish because stock valuations are so high, particularly in the US.
Bank collapses were symptoms of a “dangerous mix of vulnerabilities” that “had lurked beneath the surface of the global financial system for years” and are now being exposed by aggressive monetary tightening by central banks to combat decades of high inflation, the IMF writes in the report.
Financial tensions are also complicating central banks’ fight against inflation, which is taking longer than expected, the International Monetary Fund wrote. If these tensions escalate, the authorities may have to make difficult trade-offs between combating inflation and ensuring the stability of the financial system.
“Policy makers must move quickly to prevent any systemic event that could shake investors’ confidence in the global financial system,” even if it means lowering interest rates.
says the report. At the same time, they emphasized: After dealing with the financial pressures, central banks have to take up the challenge against inflation once again.
Weaknesses mentioned by the International Monetary Fund in the Financial Stability Report:
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