NEWS – International Monetary Fund (IMF) released the latest global financial stability report

KEY POINTS FROM THE REPORT ON GLOBAL FINANCIAL RISKS

Inflation and Credit Market Concerns

• Persistent High Inflation: Poses risks to the global financial system, potentially impacting economic stability and consumer purchasing power.
• Rising Lending in Unregulated Credit Market: Growing lending in unregulated markets raises concerns about credit quality and financial stability.

Geopolitical Risks and Monetary Policy

• Geopolitical Tensions: Ongoing conflicts in West Asia and Ukraine could disrupt aggregate supply chains, leading to higher prices.
• Impact on Monetary Policy: Central banks may delay rate cuts due to inflationary pressures and geopolitical uncertainties.

Foreign Capital Inflows and Interest Rate Signals

• India’s Foreign Capital Inflows: Ranked as the second-largest recipient after the U.S. in 2023, signaling investor confidence.
• Potential Shift in Capital Flows: Central banks signaling prolonged high-interest rates could prompt changes in capital flows, affecting emerging markets like India.

Risks in Unregulated Private Credit Market

• Growing Concern: Unregulated private credit market poses a risk to financial stability, especially with non-bank financial institutions lending to corporate borrowers.
• Financial Soundness of Borrowers: Many borrowers lack financial stability, with earnings often insufficient to cover interest costs, raising default risks.

ABOUT GLOBAL FINANCIAL STABILITY REPORT

• Provides an assessment of the global financial system and markets, and addresses emerging market financing in a global context
• Focuses on current market conditions, highlighting systemic issues that could pose a risk to financial stability and sustained market access by emerging market borrowers
• Draws out the financial ramifications of economic imbalances highlighted by the IMF’s World Economic Outlook
• Contains, as special features, analytical chapters or essays on structural or systemic issues relevant to international financial stability.

INTERNATIONAL MONETARY FUND (IMF)

• Formation: Initiated in 1944 at the Bretton Woods Conference, operational since December 27, 1945.
• Membership: Comprises 189 member countries, focusing on international economic cooperation.
• Headquarters: Based in Washington, D.C., USA.
• Core Functions:
  1. Fostering Global Monetary Cooperation: Promoting collaboration among member countries for economic stability.
  2. Securing Financial Stability: Addressing financial crises and ensuring stability in global markets.
  3. Facilitating International Trade, Employment, and Economic Growth: Supporting trade, employment, and sustainable economic development worldwide.