Rising stability Risks of Accommodative Monetary Policies
''The use of unconventional monetary policies in
advanced economies continues to provide essential support
to aggregate demand. These policies
However, a prolonged period of extraordinary
monetary accommodation could push portfolio
rebalancing and risk appetite to the point of creating
significant adverse side effects. While the net benefits
of unconventional policies remain highly favorable
today, these side effects must be closely monitored
and controlled''.
''the favorable funding environment for emerging market
economies might breed complacency about growing
challenges to domestic financial stability. Valuations
have not yet reached stretched levels (except in a few
hot spots), but sensitivity to higher global interest
rates and market volatility has increased across asset
classes, including in emerging market economies. A
prolonged period of continued monetary accommodation will increase vulnerabilities and sensitivity to a rise in rates''.
''Acute short-term stability risks have declined in the
euro area on the back of strong policy action. Prices
and liquidity conditions in sovereign, bank, and
corporate debt markets have improved dramatically,
and issuance has soared. However, medium-term
risks remain, reflecting a weak economic outlook,
persistent fragmentation, and structural challenges.
Some banks in the euro area periphery remain
challenged by deleveraging pressures, still-elevated
funding costs, deteriorating asset quality, and weak
profits.
Corporations in the periphery are directly
affected by bank deleveraging, cyclical headwinds,
and their own debt overhangs. Against this backdrop
more work needs to be done in the short term to
improve bank and capital market functioning, while
moving steadily toward a full-fledged banking union.
Policy actions have greatly reduced nearterm perceptions of tail risk''.
Excerpts from the IMF GFSR, April 2013
''The use of unconventional monetary policies in
advanced economies continues to provide essential support
to aggregate demand. These policies
are generating a substantial rebalancing of private
investor portfolios toward riskier assets, as intended.However, a prolonged period of extraordinary
monetary accommodation could push portfolio
rebalancing and risk appetite to the point of creating
significant adverse side effects. While the net benefits
of unconventional policies remain highly favorable
today, these side effects must be closely monitored
and controlled''.
''the favorable funding environment for emerging market
economies might breed complacency about growing
challenges to domestic financial stability. Valuations
have not yet reached stretched levels (except in a few
hot spots), but sensitivity to higher global interest
rates and market volatility has increased across asset
classes, including in emerging market economies. A
prolonged period of continued monetary accommodation will increase vulnerabilities and sensitivity to a rise in rates''.
''Acute short-term stability risks have declined in the
euro area on the back of strong policy action. Prices
and liquidity conditions in sovereign, bank, and
corporate debt markets have improved dramatically,
and issuance has soared. However, medium-term
risks remain, reflecting a weak economic outlook,
persistent fragmentation, and structural challenges.
Some banks in the euro area periphery remain
challenged by deleveraging pressures, still-elevated
funding costs, deteriorating asset quality, and weak
profits.
Corporations in the periphery are directly
affected by bank deleveraging, cyclical headwinds,
and their own debt overhangs. Against this backdrop
more work needs to be done in the short term to
improve bank and capital market functioning, while
moving steadily toward a full-fledged banking union.
Policy actions have greatly reduced nearterm perceptions of tail risk''.
Excerpts from the IMF GFSR, April 2013
