Members considered that, while global growth remained solid, it has become more uneven across economies, and some downside risks have begun to materialise.
Increases in policy interest rates and benchmark yields have to date been gradual. However, some developments warrant attention: normalisation of monetary policy in some advanced economies has contributed to a marked tightening of financial conditions in some emerging market economies; some asset classes – including real estate in a number of economies – are showing signs of overvaluation, and geopolitical uncertainties persist.
The Plenary considered risks that could be particularly relevant if a snap-back in interest rates were to occur:
Interest rate rises and widening credit spreads would increase debt service costs for many borrowers, and test debt sustainability for some, given high debt levels and significant rollover needs in the next few years for a number of sovereigns and corporates. Concerns over sovereign and corporate debt servicing have already contributed to market participants reassessing risks in some emerging market and developing economies.
The core of the financial system is much more resilient than before the global financial crisis, with strengthened bank capital and liquidity. At the same time, non-bank financial intermediation (NBFI) has grown, adding to diversity of funding, but with associated maturity and liquidity transformation risks, and concentrations in holdings of risky assets. New forms of interconnectedness have emerged that could, in some scenarios, act as channels for domestic and cross-border amplification of risks.
Plenary members highlighted that authorities should consider using the current window of opportunity to build resilience, particularly macroprudential buffers where appropriate.
The increasing role of NBFI underscored the importance of work being taken forward by the FSB and other standard-setting bodies (SSBs) to better understand how new market structures could respond to, and transmit, shocks, and of implementing the FSB’s recommendations to address structural vulnerabilities arising from asset management activities.
Full press release
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