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A press conference was held today Tuesday, October 11, 2022 in Washington D. C to present the new edition of the International Monetary Fund (IMF) report on financial stability in the world.
Critical Issues
The rapport analysis, according to an introduction under the title: “Cascade shocks have exacerbated the threats to global financial stability” in the first chapter the measures taken by central banks to deal with high inflation, the risks of a disorderly tightening of financial conditions and the over-indebtedness of emerging and pre-emerging countries. It is noted that the markets have become extremely volatile and a deterioration in market liquidity seems to have amplified the price variations.
The second chapter of the report explores ways to reduce the climate finance gap in emerging and developing countries as climate-focused measures, such as carbon pricing, improving transparency of climate information and the establishment of a taxonomy of the transition, are essential to stimulate private financing of climate action.
In the third and last part, the report of the international financial organization highlights the role of undertakings for collective investment in transferable securities (UCITS) in the volatility of asset markets.
Recommendations
Central banks must act decisively to bring inflation back to the level they had set, avoiding the entrenchment of inflationary pressures and a de-anchoring of inflation expectations that would damage their credibility, the report calls.
Also, it is emphasized that the high uncertainty surrounding the economic outlook prevents the authorities from providing clear and precise guidance on the future path of monetary policy, but it is essential that they communicate clearly on the reaction functions of their monetary policy, their constant commitment to achieving the objectives set out in their mandate and their efforts to further normalize monetary policy in order to preserve the credibility of the actions taken and to avoid undue market volatility.
Sovereign borrowers in developing countries and frontier countries should redouble their efforts to manage the risks associated with their high debt vulnerabilities, in particular by engaging in early dialogue with their creditors or by calling on multilateral cooperation and the support of the international community, says the IMF.
The IMF says it can help its members meet the challenges of climate change by conducting financial stability risk assessments, lending through its new Resilience and Sustainability Trust Fund, and acting to fill gaps in data production and dissemination.
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