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Financial stability risks rising rapidly, global financial system tested by inflation: IMF

Financial stability risks have increased rapidly while the resilience of the global financial system has been tested by higher inflation and fragmentation risks, the International Monetary Fund (IMF) said Tuesday.

“The emergence of stress in financial markets complicates the task of central banks at a time when inflationary pressures are proving to be more persistent than anticipated,” it said in its Global Financial Stability report — Safeguarding Financial Stability amid High Inflation and Geopolitical Risks.

“Smaller and riskier emerging markets continue to confront worsening debt sustainability trends,” it said.

About the recent banking crisis in the US, the IMF said: “Events are powerful reminders of the challenges posed by the interaction between tighter monetary conditions and the vulnerabilities built up since the global financial crisis.”

“After years of low interest rates, tighter monetary policy is challenging banks’ effective risk management in securities portfolios and of loan exposures,” it said.

“Financial crises have often been preceded by monetary tightening, but the latest stress episode differs in important respects from the 2008 global financial crisis, the 1997 Asian financial crisis, and the 1980s US savings and loan crisis,” it noted.

The IMF said inflation remains “uncomfortably well above target” but central banks are now facing a complicated task amid the stress in financial markets.

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