The risks to global financial stability have risen “rapidly” since the International Monetary Fund’s (IMF) previous assessment in October, the organization wrote in a new report.
In the latest Global Financial Stability report, IMF economists wrote that there is a “perilous combination of vulnerabilities” in financial markets as institutions failed to properly prepare for a rising interest-rate environment, producing substantial uncertainty regarding the financial system’s health. Moreover, the formation of stress in worldwide financial markets has resulted in a complex situation for inflation-fighting central banks, especially as price pressures prove “to be more persistent than anticipated.”
Despite the financial system being tested by higher inflation and interest rates, the IMF recommends that central banks utilize their suite of tools to separate their monetary-policy objectives, such as restoring price stability and accomplishing financial stability goals. At the same time, should financial pressures intensify and potentially threaten the financial system while inflation remains elevated, monetary policymakers must “act swiftly to prevent any systemic events.”…