The risks to global financial stability in the immediate future have declined, according to a new assessment from the International Monetary Fund.
But at the same time, vulnerabilities over the longer term are building, the IMF warns.
The very low interest rate policies of the rich countries have led investors to search for higher returns.
But that, in turn, has led them to be increasingly willing to accept higher risks.
There is some good news in this assessment. The strengthening global recovery - which was the focus on the IMF’s World Economic Outlook - has helped reduce financial risks in the near term.
Stronger growth means that borrowers, whether business or households, are more likely to get the income needed to maintain their debt payments. It also boosts confidence in the financial markets.
But one of the key factors the IMF identifies as supporting the post-financial crisis economic recovery also contributes to risks over the longer term.
That’s the ultra-low interest rate and quantitative easing (QE) policies pursued by rich country central banks. QE has added to the downward pressure on interest rates paid by borrowers.
Those lower rates have meant poor returns for investors who buy assets such as bonds that are essentially debts.
So many have sought to find other investments that generate better returns, a process that has been called a “search for yield”.
In one respect, they have no choice but to seek alternatives.
(BBC)
Add new comment