‘Markets may be overconfident’

Policymakers should guard against unintended consequences of stimulative policies, the IMF says.

29 January 2021 | Economics

Reducing or withdrawing support at this stage could jeopardise the global economic recovery. – Tobias Adrian, IMF

Washington - Investors may have become overly complacent about financial conditions, creating the risk of a sharp downturn in markets, the International Monetary Fund (IMF) has warned.

While policymakers must keep interest rates low to ensure economies recover from the Covid-19 crisis, they also must remain vigilant about potential problems, the IMF cautioned in the latest update to its Global Financial Stability Report.

"Financial stability risks have been in check so far, but we cannot take this for granted," said Tobias Adrian, head of the IMF's monetary and capital markets department.

With borrowing rates at record lows and new vaccines boosting hopes of a solid recovery in activity this year, prices for stocks, corporate bonds and other risky assets have risen globally, while markets have shrugged off new waves of coronavirus infections.

Adrian said the concern is that values have become "stretched," pointing to the tech sector where "we're detecting some frothiness".

Technology companies have seen a huge increase in share prices, as many have benefitted from the pandemic and trends towards shopping online and working from home.

In US markets, the S&P information technology sector jumped 42% in 2020, while increases among major companies were stunning: Apple surged 82%, Amazon 76%, Facebook 33% and Google-parent Alphabet 31%.

DISCONNECT

Markets are "betting that continued policy support will offset any bad economic news in the short term and provide a bridge to the future," Adrian said.

But the "disconnect between exuberant financial markets" and the lagging economic recovery "raises the spectre of a possible market correction".

The Washington-based crisis lender, which projects global growth will recover by 5.5% this year, has hammered home the message that governments should continue to provide as much economic support as possible.

"Reducing or withdrawing support at this stage could jeopardise the global economic recovery," Adrian said.

However, policymakers must be watching for "unintended consequences" of stimulative policies.

"You want risk taking, but you don't want excessive risk taking. Getting the balance right is really the goal of regulation that has to accompany monetary policy at all times," he said in a press briefing.

While banks have sufficient capital and have maintained the flow of credit, that may change if institutions become concerned about debt levels or creditors' abilities to repay loans, the report cautioned.

And Adrian said regulators must look not just at individual institutions, but at interconnections between banks - something that was missed in the run-up to the 2008-2010 global financial crisis. – Nampa/AFP

Similar News

 

Tesla to accept bitcoin again when greener

12 hours ago | Economics

SINGAPORE - Bitcoin hit a two-week peak just shy of US$40 000 yesterday, after another weekend reacting to tweets from Tesla boss Elon Musk, who...

WTO hopes for speedy deal on vaccine-sharing

12 hours ago | Economics

GENEVA - The head of the World Trade Organisation said yesterday she hoped that members could reach an agreement by July on improving access to...

‘Small' groups don't rule the world

12 hours ago | Economics

CARBIS BAY, England - China has pointedly cautioned Group of Seven leaders that the days when "small" groups of countries decided the fate of the...

IMF eyes new trust to provide aid

12 hours ago | Economics

Andrea Shalal - The International Monetary Fund is exploring creation of a new trust that could allow its members to lend their IMF reserves to...

Plot prices in Keetmans nearly halve

1 day - 14 June 2021 | Economics

The Keetmanshoop municipality has dropped the price per plot in the new Brukharos extension to N$16 900 per plot for low-income earners to afford housing.The...

Employers should come to the party

1 day - 14 June 2021 | Economics

RUNDU – The chairperson of the Wages Commission, Marius Kudumo, says the voices of employers and their organisations have not been satisfactory at its recently...

IMF approves US$772 mln payment to Angola

4 days ago - 11 June 2021 | Economics

The International Monetary Fund's executive board has approved a disbursement to Angola of about US$772 million after completing a fifth review of the African oil...

Minimum wage discussions continue at Rundu

4 days ago - 11 June 2021 | Economics

The newly established Wage Commission is in Rundu to investigate the possibility of introducing a national minimum wage in the country.At a meeting held at...

South Africa posts modest growth in Q1

5 days ago - 10 June 2021 | Economics

South Africa's economy maintained a steady growth trajectory in the first quarter of this year ticking up by more than one percent compared to the...

IMF approves US$650 mln in aid for Senegal

6 days ago - 09 June 2021 | Economics

The International Monetary Fund (IMF) has approved US$650 million in aid to Senegal to support the West African country's Covid-19 recovery, it said in a...

Latest News

A new look for Top...

12 hours ago | Business

Augetto Graig Namib Mills is a leader in the supply of staple food in Namibia for a reason. With the launch of their new range...

Tesla to accept bitcoin again...

12 hours ago | Economics

SINGAPORE - Bitcoin hit a two-week peak just shy of US$40 000 yesterday, after another weekend reacting to tweets from Tesla boss Elon Musk, who...

WTO hopes for speedy deal...

12 hours ago | Economics

GENEVA - The head of the World Trade Organisation said yesterday she hoped that members could reach an agreement by July on improving access to...

‘Small' groups don't rule the...

12 hours ago | Economics

CARBIS BAY, England - China has pointedly cautioned Group of Seven leaders that the days when "small" groups of countries decided the fate of the...

EDITORIAL: No genuine appetite to...

12 hours ago | Opinion

Research by the Namibia Statistics Agency (NSA) shows that almost half of the Namibian population lives in multidimensional poverty.Multidimensional poverty essentially means a concoction of...

N$2m Multichoice theft trial begins

12 hours ago | Justice

Marc Springer WINDHOEKA trial in which a married couple and their accomplice are accused...

New sports stadium in Keetmanshoop

12 hours ago | Youth

Hon. Gerrit Witbooi Regional Councilor for Keetmanshoop Rural Constituency, speaking at the official handover and inauguration of the Kronlein Sports Stadium. He said that sports...

Making agriculture sexy again

12 hours ago | Agriculture

Mariselle StofbergThe Namibian Agronomic Board (NAB) officially handed over the School Garden Funding Project (SGFP) at Auas Primary School in Windhoek on 9 June. Auas...

IMF eyes new trust to...

12 hours ago | Economics

Andrea Shalal - The International Monetary Fund is exploring creation of a new trust that could allow its members to lend their IMF reserves to...

Load More