IMF: Financial stability risks rising
Amid the highest inflation in decades and extraordinary uncertainty, markets have been extremely volatile, and financial conditions have continued to tighten globally, said the IMF’s financial counselor Tobias Adrian at a press conference on the latest Global Financial Stability Report.
With conditions worsening in recent weeks, key gauges of systemic risk have risen. There is a risk of a disorderly tightening in financial conditions that may interact with preexisting vulnerabilities.
In emerging markets, rising rates, worsening fundamentals, and large outflows have pushed up borrowing costs notably. Twenty countries are either in default or trading at distressed levels: unless market conditions improve, there is a risk of further sovereign defaults in frontier markets.
In the event a sharp tightening of financial conditions causes a global recession next year amid high inflation, 29 percent of emerging market banks would breach capital requirements, says Adrian.
“Central banks must act resolutely to bring inflation back to target and avoid a de-anchoring of inflation expectations, which would damage their credibility.”
