THE International Monetary Fund has cautioned policy makers to put appropriate checks in place to deter financial vulnerabilities, despite asset prices enjoying their best performances last year after the easing of monetary policy throughout 2019.
In their recent publication titled ‘A Call for Vigilance After a Strong Year for Risky Assets’, the fund said the combined number of policy rate cuts in advanced and emerging market economies was the largest since the global financial crisis in 2008.
The fund said for many economies, the cuts helped contain downside risks to the global economic outlook.
“The IMF estimates that global growth would have been 0,5% lower without global monetary policy stimulus,” said the fund.
The IMF pointed to the easing of global financial conditions late in the economic cycle and the continued build-up of financial vulnerabilities—including the rise in asset valuations to stretched levels in some markets, the rise in debt, and large capital flows to emerging markets—as factors that could threaten growth in the medium term.
“It is, therefore, crucial that policy makers continue to monitor the build-up of financial vulnerabilities and take steps to address them where appropriate, in order to reduce the chance that such vulnerabilities may amplify the adverse impact of shocks to the global economy,” the fund said.
While the easing of monetary policies last year played an important role in containing downside risks to the global economy, the deployment of cyclical macroprudential policy tools, such as the countercyclical capital buffer, is now paramount to keep rising vulnerabilities from putting growth at risk in the medium term.
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