The International Monetary Fund (IMF) says the global financial market has been “resilient” and functioning in an “orderly manner”, despite being challenged by the conflict in the Middle East.
Tobias Adrian, director of the IMF’s monetary and capital
markets department, spoke while unveiling the fund’s Global Financial Stability
report during a news conference at the ongoing IMF-World Bank spring meetings
in Washington DC.
Adrian said global financial markets are being challenged by
war in the Middle East, warning of “channels of financial vulnerabilities that
could amplify turmoil under some circumstances”.
The director said the conflict has alternated between
escalation and de-escalation, generating bouts of volatility, but not the kind
of sustained drawdowns that were seen in previous times of liquidity stress.
“We also haven’t seen the market calls and forced leveraging
that has occurred a number of times in recent years,” Adrian said.
“So, markets have been functioning in an orderly manner.
Central banks have been supporting markets in a number of countries through
liquidity facilities and there have also been structural improvements in
markets, for example, through central clearing.
“We also see the benefits of resilient banks, which remain
more capitalised and liquid. And so, the banking system is not a worry at this
this particular juncture.”
However, the IMF official said the resilience is not assured
in all states of the world.
He noted that elevated public and private debts and rollover
risks continue to make bond markets fragile in some countries.
Other risks highlighted include private credit and
technology-related investments.
Identifying additional risks in emerging markets, he said
“quite a bit of the non-bank flows have dominated emerging market financing,
and they can be subject to shifts in global risk appetite”.
“Now, one of the main themes of this report is the limited
policy space in many countries. You know, when we think back over the past five
or six years, oftentimes governments have come in to support financial
stability with the policy space, but the policy space has been drawn down in
many countries,” Adrian said.
“So, against this backdrop, it is very important for
countries to safeguard financial stability by monitoring closely how
vulnerabilities are evolving, having strong oversight of the banks and the
non-banks, and being operationally ready to inject liquidity.
Rather than attempting to predict shocks, Adrian advised
policymakers to ensure that vulnerabilities are understood, contained, “and
that actions can be taken if instabilities arise”.
“Finally, let me underline that artificial intelligence
represents both opportunities and risks, and one of the risks that we are
highlighting is the cybersecurity risk in this area”, he added.
This, he said, needs to be managed carefully, with
appropriate policy steps required.
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