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IMF released Global Financial Stability Report October 2015

Oct 8, 2015 16:49 IST

International Monetary Fund (IMF) on 6 October 2015 released the Global Financial Stability Report October 2015 entitled Vulnerabilities, Legacies, and Policy Challenges-Risks Rotating to Emerging Markets.

The report assessed key risks facing the global financial system and came up with suggestions to the policy makers to counter them.

The report pointed out that as the advanced economies are on recovery path the time is ripe for them to normalize domestic interest rates. This will result in volatility in the emerging economies that are more integrated with global financial architecture.

With respect to India, the report pointed out that though the credit expansion was relatively more moderate that has not prevented high formation of new stressed loans.

Highlights of the report

• Financial stability has improved in advanced economies since April, but risks continue to rotate toward emerging markets.
• The global financial outlook is clouded by a triad of policy challenges: emerging market vulnerabilities, legacy issues from the crisis in advanced economies, and weak systemic market liquidity.
• The prospect of the U.S. Fed raising interest rates points to an unprecedented adjustment in the global financial system as financial conditions and risk premiums “normalize” from historically low levels alongside rising policy rates and a modest cyclical recovery.
• Although many emerging market economies have enhanced their policy frameworks and resilience to external shocks, several key economies face substantial domestic imbalances and lower growth that is evident from China’s bursting equity bubble.
• Policymakers should have a policy strategy in hand to cope with episodes of dry ups of market liquidity.
• Markets infrastructure reforms should be continued in the emerging markets to make capital markets more efficient and transparent and to absorb any volatility.
• It cautioned about the growing level of corporate debt in emerging markets, which quadrupled between 2004 and 2014 and advised the authorities to regularly monitor corporate foreign currency exposures.

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