Global financial risks are increasing, says IMF
Rapid movements in exchange rates and interest rates took place in recent months.Risks to global financial stability have intensified since October 2014, in a context of a moderate and uneven recovery of the global economy, according to a new report from the International Monetary Fund (IMF).
These risks, according to the latest edition of the Global Financial Stability Report, have moved to parts of the financial system where it is more difficult to assess them and address them.
The IMF believes that divergent growth and monetary policies across countries have caused rapid and volatile moves in exchange rates and interest rates over the past six months.
In part, this situation results from the legacy of weakened and incomplete repair of private sector balance sheets.
Risks are also rotating - away from banks to shadow banks, from solvency to market liquidity risks, and from advanced economies to emerging markets, according to the report.
In light of these developments, countries should - according to the IMF - deal with several issues critical to safeguard the global financial stability.
The first challenge relates to enhancing the impact of monetary policy in advanced countries, while managing the undesirable side effects of low interest rates.
The report also recommends that governments limit the financial excesses resulting from continued low interest rates and preserve the stability of emerging countries as they strive to correct their own internal difficulties.
Another challenge is to cope with geopolitical tensions in Russia and Ukraine, the Middle East, and parts of Africa, as well as risks in Greece.
Finally, managing any of these challenges could become more difficult when markets are illiquid.
This is why the IMF recommends that policymakers improve market liquidity and complete reforms of financial regulation.