By MAIMBOLWA MULIKELELA  from Washington DC –
FINANCIAL stability risks have risen amid a moderate and uneven global economic recovery with rates of inflation that are too low in many countries,  the International Monetary Fund (IMF) has observed.
IMF financial counsellor Jose Vinals said risks to the global financial system had risen since October last year and have rotated to parts of the financial system where they were harder to assess and harder to address.
Mr Vinals addressed journalists at the 2015 IMF/World Bank spring meetings in Washington DC yesterday noting that Africa was performing with significant growth.
Mr Vinals said rapidly depreciating exchange rates had increased pressure on firms that borrowed heavily in foreign currencies and sparked significant capital outflows for several emerging markets.
These developments could add stress to emerging market sovereigns that had increased their combined exposure to foreign currency borrowings and foreign investor holdings of local currency debt.
Adding that volatility in major exchange rates had increased by more than half during any similar period since the global financial crisis.
“Reduced liquidity in both the foreign exchange and fixed-income markets, as well as the changing composition of the investor bases in these markets, has added frictions to portfolio adjustments.
The resulting tensions in global financial markets have increased market and liquidity risks, given that sudden episodes of volatility could become more common and more pronounced”.
He said divergent growth and monetary policies had also increased tensions in global financial markets and caused rapid and volatile movements in exchange rates and interest rates over the past six months.
This was a situation that had resulted from the legacy of weakened and incomplete repair of balance sheets.
He warned that interventions by the central banks should be complemented with other policies, otherwise monetary policies could not be fully effective in achieving their goals.