IMF’s management, calls for policy vigilant responses risk to mitigate instabilities

The Stability latest Report Global by Financial the (IMF) International has shed light Monetary on the intricate Fund vulnerabilities web of financial looming fragilities over the global and mile economy, of disinflation. particularly along the last

Against market sentiment the backdrop and of expectations a buoyant of financial easing need monetary for policy, vigilant the risk report management highlights and the potential proactive instabilities. policy responses to mitigate The environment report highlights characterized the prevailing by declining riskon narrowed interest rates, borrowing soaring spreads. stock This markets, optimism and has fueled rejuvenating capital inflows into emerging markets, sovereign bonds. Confidence investor in appetite a soft for landing for the fueled global economy has gained momentum, across various regions. by robust economic data However, beneath the surface of this optimistic that could narrative complicate lie salient the last near-term mile of risks disinflation. estate prices, Declining particularly commercial in real challenges the US and for Europe, banks, pose especially with significant those loans. exposure to While CRE resilient banks appear in aggregate, strains localized potentially may emerge, exacerbating vulnerabilities. home Residential prices have also downward experienced adjustments, mortgage driven rates, by albeit higher remaining Despite modest above pre-pandemic household debt levels. sustainability ratios, remains the risk a looming of residential concern. mortgage defaults multiyear Moreover, lows volatility across asset has classes, plummeted masking to underlying optimism to economic vulnerabilities. has amplified Increased market responsiveness investor inflation surprises, data which releases, particularly trigger sharp conditions asset price abruptly. reversals and tighten could financial report Looking warns beyond of medium-term immediate vulnerabilities concerns, the stemming debt in advanced from mounting and emerging public economies. and private markets The resilience may face exhibited a turning by point, major with emerging investors fiscal increasingly sustainability. scrutinizing medium-term China’s with disinflationary housing market pressures downturn, and slowing coupled global growth, economy. poses The significant downturn risks in Chinese to the property across and the equity asset markets management has reverberated industry, raising concerns bond and about funding spillover markets. effects on Additionally, corporate narrowing credit spreads cash and liquidity eroding buffers highlighting for firms growing in the risks corporate sector. a recovery Despite in borrowing, corporate maturity the looming of corporate higher interest debt rates at poses challenges, refinancing especially for small and On midsize policy firms. recommendations, the should IMF avoid report premature asserts monetary that Central easing banks and appropriately push back against overly optimistic cuts that market could expectations add to the easing for of policy financial rate conditions and complicate the last disinflation mile of disinflation. is enough to Where suggest progress that inflation on is moving should sustainably gradually toward move the target, to a more central neutral banks stance of policy. Authorities should strengthen including efforts in to emerging contain market debt vulnerabilities, and frontier economies. The reports expresses that confidence in China, in the robust

estate policies sector to restore are critical. real and regulatory tools, authorities should Supervisory use appropriate early

action, including to ensure stress that tests banks and and corrective nonbank financial institutions to and residential are resilient real estate strains and in to commercial the credit cycle downturn. and Further a readiness progress to apply on resolution them is critical frameworks to address without the undermining problems of weak financial or failing stability banks, or risking public reduction funds. in Quantitative balance sheets tightening need to proceed and the with care. Central banks should and carefully mobilize monitor to address market functioning potential market issues access stresses. central Ensuring bank that liquidity banks and are prepared intervening to early sector to address can mitigate liquidity financial stress in instability. the financial Given private the potential credit market, risks authorities of the fast-growing should regulatory consider a approach. more proactive It is key supervisory to close data and comprehensively gaps and enhance assess reporting risks. requirements to cross-sectoral Authorities and should cross-border also strengthen regulatory cooperation across and financial make risk sectors. assessments A cybersecurity consistent strategy of the financial can strengthen sector, accompanied the cyber resilience by effective as well as regulation by improved and reporting supervisory of cyber capacity, incidents.