Transcript

GFSR PRESS BRIEFING

October 10, 2023

Speakers:

Tobias Adrian, Financial Counselor and Director, Monetary and Capital Markets Department, IMF

Fabio Natalucci, Deputy Director, Monetary and Capital Markets Department, IMF

Jason Wu, Assistant Director, Monetary and Capital Markets Department, IMF

Moderator: Randa Elnagar, Senior Communications Officer

Ms. ELNAGAR: Assalamu alaikum. Good morning. [Sabah al Khair].

Welcome, to everyone in the room and to our viewers around the globe. This is the press briefing for the release of the Global Financial Stability Report. I am Randa Elnagar of the IMF’s Communications Department.

I would like to start by thanking the Moroccan authorities for hosting the 2023 Annual Meetings.

Let me introduce our speakers today. To my left, Tobias Adrian, director of the Monetary and Capital Markets Department; Fabio Natalucci, deputy director of the Monetary and Capital Markets Department; and Jason Wu, assistant director to the Monetary and Capital Markets Department.

Before taking your questions, let me kick‑start our briefing today and turn to Tobias here and ask a few questions.

Tobias, a lot has happened since we spoke in April. Can you please --

And how do you assess global financial stability, in light of the recent events? Have risks risen, given the sharp rise in global bond yields?

Mr. ADRIAN: Thank you, Randa. And let me also thank the authorities here in Morocco for hosting us. And our hearts go out to those that were struck by the terrible earthquake just a few weeks ago here in Morocco.

So since we last met in April, financial conditions have tightened. Earlier in the year, we were concerned by the ease of financial conditions. Even though monetary policy around the world had tightened, financial conditions actually had eased. In the last two weeks, and starting in June, financial conditions have tightened, and that is better aligned with the tightening of monetary policy. So bond yields have risen; but in many ways, that is a welcome tightening and very much in line with the tightening of monetary policy.

So our overall financial stability assessment is one where we do see risks that continue to be skewed to the downside. However, the recent tightening of financial conditions has been orderly. So term premia, in particular, have increased. So the risk premia embedded in longer‑term yields that investors earn for holding the duration risk, that term premium has risen, but it’s really a rise from a very low level and compressed level that had been present since the global financial crisis 15 years ago, to a more average level of term premia, so quite orderly and quite welcome, to date.

Ms. ELNAGAR: Thank you, Tobias. Turning to what countries can do. Monetary policy actions have become more differentiated across countries. How do you see this affecting financial stability? And what is your advice to central banks?

Mr. ADRIAN: Yes. So in the past four years, we have seen common shocks hitting the global economy -- first COVID, then the rise of inflation, then the war in Ukraine. And those common shocks have led to a synchronization of monetary policy around the world.

In recent months, we have seen less and less of this synchronization. While some central banks continue to raise interest rates and tighten monetary policy, other central banks have started to ease monetary policy. And that is because the inflation outlook is starting to diverge across countries. So our baseline advice to central banks is to hold the course; to continue tightening, when necessary; to hold steady, where appropriate; and to cut, where appropriate, but always with an eye to get inflation back to target. We do not see at this point that the stance of monetary policy is directly interacting with financial stability or is putting financial stability at risk.

Ms. ELNAGAR: Thank you, Tobias.

Now let me turn to your questions. For those watching online, you can submit your question via the online media briefing center or via WebEx. So let’s take your questions. Raise your hand, and identify yourself, please.

Let me start with the gentleman in the middle.

QUESTION: Hello? Can you hear me?

Ms. ELNAGAR: Yes.

QUESTION: Thank you, Randa. And thank you for doing this briefing.

In your report, you stressed that sustainable economic growth requires both price and financial stability. How do you assess the effects of monetary tightening in advanced economies on more emerging and developing countries, especially in Africa and the Middle East?

My second question is related -- if I may, please -- on Morocco. How do you -- what’s your take on Morocco’s monetary policy to lower inflation, ensure financial stability, without hurting growth? Thank you.

Mr. ADRIAN: Yeah. Thanks so much for those important questions.

So we have seen a rise in global interest rates, and that has been spreading around the world. At the same time, spreads, relative to benchmark interest rates, have been differentiated by the underlying riskiness of emerging markets and frontier economies. So more fragile countries, and particularly those with heavy fiscal burdens, have seen more of a rise in spreads than emerging markets that are viewed as being safer by markets. So quite a bit of differentiation but kind of an orderly process.

And many emerging markets were early in terms of raising interest rates and fighting inflation, so we see that it’s really the emerging markets that are the first to also start cutting interest rates, as the disinflation is actually more advanced in many emerging markets.

I will turn in a moment to my colleagues to complement me on this general observation.

Now, concerning Morocco. Morocco has been very resilient in the face adverse shocks. And that resilience is really reflective of the strength of both the economy and the financial system in Morocco. Of course, the IMF has been working closely with the authorities in Morocco and has launched the Resilience and Sustainability Trust just this year, in order to increase the preparedness against any possible climate change. So really impressive economic performance, in particular, with respect to this terrible earthquake.

Let me turn perhaps to Fabio and then Jason, to complement me.

Mr. NATALUCCI: Thank you, Tobias.

So I think just to emphasize the point Tobias made about the emerging markets having benefited from having tightened monetary policy earlier on in the global tightening cycle, starting early 2021. That buffer, compared to policy rates in advanced economies -- specifically the United States, has allowed them to manage the inflation process in a way that is different from what we have seen from past global tightening cycles and has shown that the asset class of emerging markets, in general, has been quite resilient. Now, that buffer is starting to erode. So spreads to the U.S. are getting smaller, while in some parts of the emerging market world, like Asia, actually, they are becoming negative. So going forward, the advice is to emerging markets, not to cut interest rates too aggressively because they could have negative spillovers in terms of the performance of equities, for example, or currencies.

One last point, a point of differentiation. We have seen differentiation during the tightening cycle, and we continue to see differentiation now. Spreads have widened much more for high yield and frontier countries, vis‑à‑vis investment grade, where spreads have been quite tight. That said, with the U.S. rates moving higher, yields in emerging markets have moved higher. So external financing costs are going up across the board, much more so, though, for sub-investment grade.

Mr. WU: Good morning. It’s an honor to be here. And thanks for the question. Maybe I can just complement a little bit on the Moroccan question.

So in the years leading up to the pandemic, Morocco has seen low and stable inflation. Inflation at one point this year reached 10 percent but has steadily fallen. And as Tobias mentioned, our IMF colleagues are projecting growth to rebound next year. So in light of this, the Bank Al‑Maghrib’s monetary policy has been appropriate.

And in terms of financial stability, a key aspect of it is -- for emerging markets, in particular -- is external pressures. And in recent months, we have seen, as global interest rates have risen, the dirham has depreciated a little bit, the spreads have widened a little bit but at manageable levels, partly reflecting the fact that a buffer has been built by these policy actions.

Ms. ELNAGAR: Thank you, Jason. I will stay in the middle. The lady in the back with the glasses.

A question for Tobias. You said that the current rise in bond yields has been orderly. Would you also describe some of the more recent spike up in the last 10 days or so as orderly? And how much of what we’re seeing in the longer‑term increase in 30‑year yields in the U.S. is about the fiscal situation in the U.S.? The WEO shows that the U.S. will have the largest deficit among largest countries. It will stay about 7 percent, even in 2028. Is that still an orderly process of trying to reassess the state of the public finances in the U.S.?

Ms. ELNAGAR: Can you identify yourself please?

QUESTION: Sorry. Mehreen Khan from The Times of London.

Mr. ADRIAN: Thanks so much for the question.

So the rise in yields has been quick, but we haven’t seen sort of like a forced deleveraging or other market dysfunction. Of course, with the rise of interest rate volatility, market liquidity has dried up, to some degree; but again, it has not triggered a forced deleveraging at this point. So in that sense, we feel that it is orderly to date.

And the rise in these bond yields is primarily driven by a rise in real term premia. So, basically, the compensation that investors get for holding long duration risk, but it’s the real risk. So it’s not so much the inflation or the outlook of inflation that has driven the rise in bond yields but more the uncertainty about real activity going forward. And we see three drivers for that.

So one is, of course, fiscal uncertainty, and that is longer duration uncertainty about the fiscal outlook. And that is uncertainty that is broadly present around the world.

Secondly, you know, central banks in some countries have started quantitative tightening, so actively unwinding their balance sheets. And some central banks are expected to get to this more active balance sheet normalization. And that would be expected to drive up term premia as well. So the quantitative easing after the global financial crisis was explicitly aimed at getting the term premia down. So now, as we have normalization, those term premia are normalizing. And really, when you look at longer‑term historical averages, the term premia were very compressed for about 10 years. And they’re moving back to historical levels, but they haven’t even gotten to the average historical, you know, situation. So, again, quite reassuring.

And then, you know, third of all is, of course, broader fragmentation globally. And that would also impact market pricing, to some degree.

Ms. ELNAGAR: Thank you, Tobias. Staying in the middle, the gentleman in the front row.

QUESTION: Thank you for taking my question.

So you said a couple of words about the war in Ukraine. May I ask you, could you please elaborate, how do you assess the risk of the further geopolitical tensions of this war among other risks for global financial stability? Thank you.

Mr. ADRIAN: Yeah. Thank you.

So we are very concerned about global fragmentation. And the war in Ukraine is certainly one trigger for fragmentation, but there are broader forces of fragmentation. The IMF is working closely with the authorities in Ukraine in order to support financial stability in the country. So we are working closely with the central bank, in particular, in order to ensure financial stability. And I would say that the country has shown an incredible resilience in the face of this terrible war.

Do you want to complement me?

Mr. NATALUCCI: More broadly, on the impact of geopolitical fragmentation on financial markets.

So the Fund has done quite a bit of work. In April, there were two chapters, one in the World Economic Outlook, looking at the impact of fragmentation on FDI. And there was a chapter in the Global Financial Stability Report, looking at the impact on financial markets. I think we highlighted three channels there. One was on the impact on portfolio flows. And so measuring fragmentation as the distance in voting at the United Nations, there was a significant number of them, so impact on portfolio flows. So it was about 15 percent of portfolio flows on a bilateral basis. That’s a pretty large number and even larger for banks.

The second channel was the impact on cross‑border lending by banks and the impact on the profitability and health of the banking sector.

And then the third channel was the broad channel of diversification. To the extent that the world is fragmented on different fault lines, on the financial market side, the ability to diversify it across common shocks, this goes down and makes the system more susceptible to shocks.

So those were the three main channels that were identified on the financial market side.

Ms. ELNAGAR: Thank you, Fabio. I will stay in the middle, the lady in blue. I’m sorry. I thought you raised your hand. I will go to the left, the gentleman, please.

Just on the stress tests, what could you tell us, in your view, about the continuing vulnerabilities of the regional banks, in particular, following what happened earlier this year? And do you assess, in light of both the central and adverse scenarios, that the Fed’s lending facility unveiled in March would still be sufficient to deal with any further stresses in that sector?

More generally, what are the regulatory upgrades that are now needed, in light of the very widespread weaknesses that these stress tests are exposing in the banking system? Are you surprised by how significant the weaknesses are, given we’re more than 10 years after the GFC reforms? Thanks.

Ms. ELNAGAR: Can you identify yourself? Sam Fleming from the FT. Thank you.

Mr. ADRIAN: Thanks so much.

So today we are launching two chapters of the GFSR. The first one is our conjunctural assessment, and the second one is an updated set of results on our global stress tests of banks, as well as an indicator‑based approach in terms of monitoring banking vulnerabilities. So what we are doing in this second chapter is to look at a broad set of banks, about 900 banks globally. And those do include the so‑called regional banks in the U.S., as well as many smaller banks around the world.

And so what we are seeing is that, under a baseline, there’s already a weak tail of banks. It’s a relatively small weak tail of banks, but it’s broadly spread around countries. We are looking at 29 countries, both emerging markets and advanced economies. But under an adverse scenario -- so if we imagine that the baseline that does not realize but that an adverse scenario with a drop of GDP by 2 percent globally and a rise in inflation that would keep interest rates elevated for many years, under such an adverse scenario, we do find weaknesses in the banking system. There’s a weak tail of banks; that is, more than 30 percent of banks by total assets would see a significant decline in capital ratios. So that is broadly spread across banks. So it includes smaller banks, like these regional banks in the U.S., as well as larger banks, such as some of the most significant institutions globally.

So our recommendations are twofold. So number one is, regulation and supervision should be strengthened. So in the U.S., in particular, authorities have taken the appropriate steps to strengthen both the supervision and regulation of those regional banks to align them with the regulation of larger institutions in that country.

Secondly, what we saw in March, in both the U.S. and in Switzerland, is that timely and aggressive action to contain fallout from banking turbulence can be very effective in terms of containing any instability and preventing it from spreading. So in that respect, the Federal Reserve started a new lending facility that is still ongoing. For the moment, it is ongoing through at least March 2024. And the Deposit Insurance Corporation also put in place a special -- or triggered a special systemic risk exemption in order to protect the banking system and the regional banks, in particular. And those actions were timely, forceful, and really contained financial stability. So we do feel that the combination of tighter supervision and tighter regulation, together with these very effective backstops, do, you know, ensure financial stability for these regional banks.

Perhaps Jason wants to complement me on the question about the stability of the banking system, perhaps also in emerging markets.

Mr. WU: Thank you very much. Yes.

Just to complement on what Tobias has said about the stability in the banking system. I think, you know, what we found in the stress test that was interesting is that there are several channels through which banks can lose money. One of which is that they hold bonds. As interest rates go up, those lose value. Another channel is the more classical channel, where the credit quality of the loans deteriorates.

What’s interesting is that in advanced economies, we found that the bond channel is more stronger in terms of the impact on regulatory capital, compared to then the loan loss channel; whereas in emerging markets, it’s the other way around. So this is somewhat in line with conventional wisdom, that credit risk or loan deterioration, loan quality deterioration is a key driver during macroeconomic downturns.

Ms. ELNAGAR: Thank you, Jason. We’ll stay on this side, please. The lady in the front row.

QUESTION:

Talking about the banking system? I want to ask about the Middle East. Do you see any risks in the banking sector in the MENA region, especially that they have a high level of domestic debt? What is your advice to the policymakers in the region when it comes to monetary policy and financial stability?

Mr. ADRIAN: Thanks so much.

So we are working closely with many countries in the Middle East. And I would point to the strong interconnection between sovereign debt in many Middle Eastern countries and banking sector exposure. So, you know, many countries have a fairly large exposure. Many banks have a large exposure to the sovereign. So there’s a nexus between the sovereign and the banking system’s stability. And that is something that needs to be taken into account, both in the macroeconomic framework, as well as in the regulatory approaches to the banks. So the first order‑policy recommendation is to have sufficient capital, to have forward‑leaning and aggressive supervision in order to make sure that even if there is macro instability or instability at the sovereign level, the banks remain safe and sound.

So a second point that I would also emphasize is that, you know, the overall macro‑financial stability is extremely first order. So having appropriate monetary and fiscal policies in place is also supportive of financial stability.

Do you want to complement, Jason?

Mr. WU: Thanks, Tobias.

Yeah. So the issue seems to be exposures to sovereign, as Tobias mentioned; foreign currency shortages, in some cases; and asset quality pressure, when an economic downturn is around the corner.

So taking the example of Egyptian banks for a moment, obviously, some of them have been under pressure for some time. However, bank stocks of major Egyptian banks have risen over the past half year, despite higher global interest rates. One of the reasons is because of solid profitability, as well as, you know, adequate provisions.

So to Tobias’s point about policy, I think, you know, taking this opportunity to build capital buffers, enhance supervision, is an important way to counter this risk, as well as solving the more fundamental issue of the, you know, fiscal frameworks and making debt more sustainable.

Ms. ELNAGAR: Thank you, Jason. We go to the left side here, the gentleman in the front row.

QUESTION: Thank you.

My question is that Nigeria has been doing a lot of reforms, both currency and raising interest rates, but we are not really seeing the positive feedback. The naira is falling too badly. And we are thinking if there are other options that you could provide to help the economy to pick up. Thank you.

Mr. ADRIAN: Thanks very much. So we will have a regional press briefing for all of the regions, including an African press briefing, where country‑specific issues will be addressed. I think that briefing is going to be on Thursday. So let me comment more generally on sub‑Saharan Africa.

First of all, it is so good for the IMF and World Bank meetings to be back in the African continent for the first time in 50 years. We are very, very happy to be here.

We are working very, very closely with many authorities in sub‑Saharan Africa. And I would just point out that macroeconomic frameworks -- so both monetary and fiscal policy -- are so very important to create growth in the region. So a number of countries have undertaken important reforms for both monetary and fiscal policy, as well as in terms of their debt and their fiscal path going forward. And, you know, in our work with the countries, about half of the countries have a program in place already in sub‑Saharan Africa, and we are working with additional countries on more programs. And we really put a lot of effort into improving growth prospects.

Ms. ELNAGAR: The lady with the glasses, please.

QUESTION:

In this world of higher debt, do you think the recent rise in bond yields across the world will put more fiscal pressure on governments as they try to cut taxes or raise spending, particularly in countries like the U.K., where quantitative easing has made debt more sensitive to rising interest rates, and in the U.S., which is running a significant budget deficit?

Mr. ADRIAN: Yeah. Thanks so much.

So, again, I would say that the rise in bond yields is really a return of these term premia to more historical averages. So in that sense, we don’t view it as disorderly at the moment. But, of course, it is true, what you are saying, that the cost of debt is going to be higher going forward if these levels of interest rates were going to persist. There is some uncertainty about how this is going to evolve going forward.

So when we are looking at sort of like far‑in‑the‑future forward yields, we do see that the term premia there have gone up. So we would expect that borrowing costs going forward are going to be somewhat higher for long‑duration assets. But we do not see that this is putting undue pressure in terms of fiscal costs for advanced economies, including the U.K. and the U.S.

We do expect that short‑term interest rates will revert back to lower levels, as inflation is coming down. But having said all of that, of course, a prudent fiscal policy is a key component to good macroeconomic management and is also a basis for ensuring financial stability, both in advanced economies and emerging markets.

Fabio, do you want to add to that?

Mr. NATALUCCI: I will just emphasize perhaps the point that the price in yields is not just a U.S. or a U.K. phenomenon; it’s a global phenomenon. So we have seen yields rising across the board in advanced economies. And even some of the local currency yields in emerging markets that have been more subdued in their movies earlier in the year have seen, in the month of September, a significant increase as well.

I think that’s why the policy -- the policy recommendation, that’s why the policy -- monetary policy recommendation goes hand‑in‑hand with the fiscal one; right? So on the one hand, we support the idea that more central banks should remain determined until there is tangible evidence of inflation credibly and sustainably going back to target but also that fiscal policy -- monetary policy can get support from fiscal policy in trying to restrain inflation, also rebuilding buffers and containing the rise in debt. I think that’s important.

The yields have moved really back to -- particularly in the U.S. -- to pre‑global financial crisis, both in nominal terms -- so the 30 years above 5 percent, for example -- but also real yields have moved up, back to the pre‑GFC level. That’s why it’s so important on the fiscal side to address fiscal -- the fiscal outlook and contain the rise in debt.

Ms. ELNAGAR: Thank you, Fabio. I will go to the gentleman in the back.

QUESTION:

The Italian government, they recently decided to higher the fiscal deficit for the next two years and to flatten the reduction of debt. So it basically will not go into -- to reduce for the next few years. The government said this is a prudent policy. Do you agree with that? Or do you think the Italian fiscal trajectory poses some concerns?

Mr. ADRIAN: Yeah. Thanks very much for that question. So this is really a question about fiscal policy in Italy. So let me point to the Fiscal Monitor release tomorrow, as well as the European press briefing later in the week.

So when we look more generally around Europe -- so, you know, historically, of course, about 10 years ago, we had a sovereign debt crisis in Europe; but when we look at spreads to date between the [bund], which is the benchmark in Europe, and peripheral countries or southern European countries, those spreads remain well contained. And, of course, the European Central Bank put in place a monetary transmission instrument that really has worked to calm any fears and has contained these spreads at reasonable levels.

Ms. ELNAGAR: Thank you, Tobias. The lady raising her hand in the back. And then we will come after that. Please identify yourself.

QUESTION:

I have a question on risky asset prices, if you do believe that equity markets are still underestimated, the higher‑for‑longer policies and scenario? Thank you.

Mr. ADRIAN: Thank you so much.

So we are at equity market valuations in the GFSR. And what we are seeing is, of course, that much of the rise in equity values this year was associated with an increase in risk appetite. That was particularly pronounced in the tech sector, so particularly stocks that are related to artificial intelligence. So many of those stocks have risen over 50 percent year to date. So a lot of positive sentiment. In recent weeks, as global bond yields have risen, equity valuations have come down, to some extent. So we do feel that that has been an appropriate repricing.

And so when we look at stock markets outside of those tech stocks, we see that valuations are much more in line with the historical averages of equity risk premia. So I think compared to, say, April, we are feeling more at ease with these equity market valuations. Fabio?

Mr. NATALUCCI: First of all, I think the increase in equity price is broad based; it’s not in specific jurisdictions. So equities are up about 10 percent in the U.S. and Europe. They’re up almost 20 years in Japan. And they are slightly down in emerging markets. So one, it’s a global phenomenon.

The other one is what Tobias has mentioned, which is it’s very much driven by specific sector. So technology and AI, the U.S. tech sector, the world tech sector. Those are the main -- those are the sectors and the segments that are up much more, globally speaking.

Now there are two issues, I think. One is that the performance of equity prices seems to be more challenging during periods of high inflation. So that is something that we have looked into [in] the GFSR. And equity price seems to more challenged when there’s high inflation because monetary policy gets tightened, so interest rates move higher.

The second aspect is that real rates have moved high quite a bit. As I mentioned before, for example, in the U.S., 10‑year real rates are almost 2.5 percent. So that is a higher level. Close to the -- at this point, could be above what they were during -- pre‑the‑GFC. So we are back to pre‑GFC levels. That may challenge valuation, to the extent that the earnings forecasts going forward may not be as strong as we have seen post‑COVID. So I think those are the two main channels that may put risk assets under pressure.

A similar picture you can get for corporate spreads, for example. Those have been very compressed. And so as real rates start moving higher, they could come under pressure as investors reassess the outlook for credit.

Ms. ELNAGAR: Thank you, Fabio. I’ll move to the middle of the room and then come back to you. The lady again, second time.

QUESTION: Thank you very much. And good morning, Tobias. I am from CCTV.

And my question is, given the uncertainties in the global financial environment, how will China help world economic growth?

Mr. ADRIAN: Thank you so much. The economic growth prospect was discussed earlier, at the World Economic Outlook launch. And, you know, Chinese growth continues to be relatively high, compared to other countries in the world. So we are particularly concerned with financial stability in China.

The housing market has come under pressure in recent years. Authorities have taken steps to stabilize the housing market. And, of course, there are exposures of local governments through these local government [investment] vehicles, as well as local banks, particularly provincial banks, as well as the wealth management products to the real estate market.

So ensuring that the financial system continues to work, that households continue to have a positive outlook on the economy, are very important for growth and for financial stability, in particular, going forward.

Mr. NATALUCCI: Just emphasizing. I think the main concern from a financial stability perspective is this feedback effect between weakening economic momentum and some stress that we have seen in particular segments of the financial sector. So from the property sector, strains in that sector spill over back to the banks, some of the weaker banks, as well as some of the shadow banking, the trust management, and wealth management products, and the local government provinces, particularly those with weak finances.

I think from a policy perspective, it’s really crucial at this point to restore confidence in the real estate sector. That sector accounts for a significant share of the GDP of China. And so the two priorities should be, one, the complete housing project -- that would be one powerful step toward restoring confidence in the sector -- as well as the resolution and restructuring on weak property developers.

From a macro standpoint, I think to the extent there is weak growth momentum, further monetary policy is in support -- oriented toward the households may be helpful in restoring confidence. Then from a financial stability or a financial policy perspective, addressing the weak and restructuring of property developers, the need for a comprehensive strategy to address the LGFV debt issue, as well as the local provinces, and the asset management industry and the shadow banking, where we see vulnerabilities in terms of liquidity mismatch, use of leverage, and credit.

Ms. ELNAGAR: Thank you, Fabio. The gentleman with the striped shirt here. Please identify yourself and your organization.

QUESTION: Bonjour. Hello.

[Through interpreter]

I would like to come back to the situation in Morocco.

The Governor of Bank Al‑Maghrib said a few days ago, a few weeks ago, that the tightening of monetary policy had little impact on the real economy because, as we saw during the first half of 2023, inflation remains stubborn and even went higher. And it only started declining toward the end of the first half of the year. What is your assessment of that statement?

Now, regarding the debt level in Morocco, is the IMF not directly or indirectly responsible, especially considering the social budget?

Mr. ADRIAN: So there were two questions. The first one is about monetary policy in Morocco and the second one about fiscal policy.

So let me just underline that Morocco has done a great job in moving toward more flexibility of the exchange rate. In our assessment, allowing the exchange rate to buffer some of the shocks is very important for monetary policy transmission and to cushion against adverse shocks. Morocco has had a drought but even with a drought, we see agricultural production to be fairly strong; tourism is picking up as well. And, of course, all countries around the world -- emerging markets -- have been hit by a rise in oil prices in recent months, and a number of commodity prices have increased. And so that’s a headwind for many. But I think that the central bank -- you asked about the Governor, in particular -- is doing a great job in terms of moving monetary policy in a way to get inflation back to target. There are always trade‑offs, of course. And this trade‑off is managed very well.

I cannot really comment on the fiscal situation. Again, the Fiscal Monitor is going to be launched tomorrow. And there will be a regional press briefing for the Middle East region later this week, as well, that can go further into the fiscal issue.

From a financial stability point of view, we do feel that the Moroccan authorities are taking very good steps to make sure that the banking system is well capitalized. And of course, they have taken many steps to increase financial inclusion, again, something that is so important for both financial stability and financial growth, as well.

Ms. ELNAGAR: Thank you, Tobias. We will take one last question. We will go to the right.

QUESTION: Thank you very much, Randa.

And my quick question is on US dollar appreciation and regarding --

Given the recent higher yield, especially in longer‑term U.S. bond -- the US dollar has appreciated a bit drastically. And what is your risk assessment on the fragile development of the US dollar? Thank you very much.

Mr. ADRIAN: Thanks so much for that question. The US dollar has appreciated recently, but that is following a slight depreciation earlier. So, of course, a rise in US dollars is increasing the borrower costs for countries that have exposure -- or that have debt denominated in US dollars. But as we pointed out earlier, emerging markets have really been incredibly resilient in recent years to massive adverse shocks. And I just want to underline again how impressive emerging market performance has been through four years of very, very adverse shocks. So I think the rise in the US dollar, you know, will put -- you know, is marginally impacting funding costs but I don’t think will trigger broader pressures on emerging markets that have been proven so resilient.

Ms. ELNAGAR: Thank you so much. We come to the end of our press briefing.

Let me thank our speakers, Tobias Fabio, and Jason. Also, I want to thank you for joining us today and those who joined us online.

Let me remind you of the release of the Fiscal Monitor tomorrow morning at 9:30 a.m. It’s going to be taking place in the same room. Shukran.