The IMF published the October issue of its Global Financial Stability Report with the title “Navigating in a High Inflation Environment”. The world economy is facing “persistently” high inflation, a challenge it hasn’t faced in decades, the report said. Pointing out that the monetary authorities in advanced economies accelerated the policy normalization in the face of high inflation, it was stated in the report that global financial conditions became particularly tight this year, leading to capital outflows from many emerging and border market economies with weak macroeconomic fundamentals. In the report, it was noted that there is a risk of irregular tightening of financial conditions, which may increase with the fragilities that have developed over the years.
Warns of repricing risk
In the report, which stated that the global economic outlook has deteriorated significantly since April, it has been reported that the slowdown in the global economy has intensified. Emphasizing that the risks to global financial stability have increased since April, the report said, “The global environment is fragile while there are storm clouds on the horizon.” evaluation was made. In the report, which stated that risky assets had a hard sell throughout June due to the fear that central banks will have to increase policy rates to combat high inflation, it was stated that there was excessive volatility in the crypto markets. “As investors have been aggressively withdrawing from risk-taking lately as they reassess the economic and political outlook, there is a danger that risk will be repriced unevenly,” the report said. expression was used. In the IMF’s report, it was noted that policy makers should strike a balance between taking decisive action to reduce inflation and avoiding erratic market conditions.
Communication emphasis for central banks
IMF Monetary and Capital Markets Department Director Tobias Adrian, in his blog post on the report, stated that global financial conditions are tightening as central banks accelerate the normalization of monetary policy to prevent rapid inflation from becoming permanent. “In a highly uncertain global environment, the risks to financial stability have increased significantly,” Adrian said. made its assessment. Tobias Adrian stated that the main problems facing financial systems are inflation, which is at its highest levels in decades, the continued deterioration of the economic outlook in many regions and ongoing geopolitical risks. Emphasizing that central banks must act decisively to bring inflation back to the target, Adrian noted that clear communication on policy decisions, adherence to price stability and the need for further tightening will be crucial to maintaining credibility and avoiding market volatility.