The global bank lobby group, the Institute of International Finance (IIF), warns that the impact of extremely loose monetary policies may be creating a buildup of market risks.<\/p>\n
The IIF’s Market Monitoring Group warned in a statement that as “Japan and Europe intensify efforts to use monetary policy to support growth, signs of potential underpricing of risk persist.”<\/p>\n
“With earnings growth and fundamentals still weak in many countries, the evident shift in portfolio allocations toward riskier assets, compression in credit spreads, and higher\/more volatile equity prices is a source of concern,” it said; adding that signs of slower growth in key emerging economies also represents a risk to export markets, especially for commodities.<\/p>\n
“If a lack of growth and\/or inflationary pressure were to prolong this period of exceptionally low rates in major mature economies, incidences of underpricing of risk \u2014 and the potential for disorderly reversals \u2014 would continue to accumulate,” it noted.<\/p>\n
Additionally, it stressed that there are risks associated with exit strategies from such expansionary policy, and a potential rise in U.S. bond yields, including: potential volatility in capital flows to emerging market economies; higher debt servicing costs due to high budget deficits and public debt in mature market economies; risks to recovery in Europe; and, significant valuation losses for bondholders, including for central banks.<\/p>\n
It also warned about concentrations of credit risk \u2014 encouraged by the zero risk-weighting of domestic government bonds \u2014 which, it said, “could increase the negative feedback loop between sovereigns and their banks, if public debt sustainability in weaker member countries comes under question again.”<\/p>\n
And, it said that “potential vulnerabilities exist in parts of the corporate sector, particularly in a number of Euro Area countries including Ireland, Portugal, Spain and Belgium, where corporate debt-to-GDP ratios are high.”<\/p>\n","protected":false},"excerpt":{"rendered":"
Lobby group highlights risks associated with exit strategies from expansionary monetary policy<\/p>\n","protected":false},"author":38954,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[2312,2313],"tags":[3807],"yst_prominent_words":[],"acf":[],"_links":{"self":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/268785"}],"collection":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/users\/38954"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/comments?post=268785"}],"version-history":[{"count":0,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/268785\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/media?parent=268785"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/categories?post=268785"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/tags?post=268785"},{"taxonomy":"yst_prominent_words","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/yst_prominent_words?post=268785"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}