The global financial stability report released by the International Monetary Fund (IMF) on the 6th local time said that the loose monetary policy during the epidemic period made the financial system perform soundly, but it may lead to the increase of financial vulnerability. Therefore, it is necessary to guard against the risk of financial vulnerability in the process of economic recovery.
The report said that with the support of ultra loose monetary policy, the global financial system was stable during the period of COVID-19. The significant relaxation of the financing environment provides support for the recovery of the real economy and helps to curb the risk of financial stability, but at the same time, it may lead to high market valuation. If the rising financial vulnerability is not solved, it may become a structural legacy.
The report points out that since the third quarter of 2020, under the expectation of rapid economic recovery and continued policy support, the stock markets of many countries have risen sharply, and the valuation has deviated significantly from the economic fundamentals. The recent sharp rise in the interest rate of US Treasury bonds to a certain extent reflects the increased confidence of investors in the economic prospects. However, if the interest rate continues to rise rapidly, it may lead to the re pricing of market risks and the sudden tightening of the financing environment, thus affecting market confidence and endangering macro financial stability.
The report also said that the economic recovery process of developed and emerging economies is expected to be differentiated, especially when the policy makers of developed economies start to promote the return of policies to normal, and there is a significant risk of tightening the financing environment of emerging economies. If the financing environment becomes unfavorable, it may lead to large-scale capital outflow, which will pose a major challenge to some emerging economies with huge financing demand.
According to the report, continuous policy support is essential to achieve sustainable and inclusive economic recovery. IMF suggests that policy makers should take action as soon as possible to tighten some macro policy tools to deal with a series of serious vulnerability problems.
The global financial stability report is usually released during the IMF’s annual spring and autumn meetings, and is updated in the current year and at the beginning of the next year. Affected by the epidemic, this year’s IMF and World Bank spring meeting was held online from April 5 to 11.