Transcript of Global Financial Stability Report October 2024 Press Briefing
IMF News, October 22, 2024
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- Published: October 22, 2024
Major themes and headline findings
- Title of report: “Steadying the Course: Uncertainty, Artificial Intelligence, and Financial Stability.”
- Report baseline: a soft landing globally; the likelihood of a global recession has continued to recede.
- Inflation: global inflation has progressed toward target in most countries; most central banks continue with a tight stance but have started to cut rates.
- Financial conditions: globally accommodative; credit spreads continue to be tight; implied volatility in risky asset markets (particularly equities) remains fairly low by historical standards.
- Tension highlighted in Chapter 1: low market‑implied volatility in equity markets versus relatively elevated measures of geopolitical and economic uncertainty computed by other institutions, creating a worry about a potential sharp readjustment of financial conditions.
- Recent market episode: a brief sell‑off in August that was short‑lived but illustrative of the risks posed by the volatility–uncertainty wedge.
Financial stability risks and channels
- Interest‑rate volatility:
- Interest rate volatility is higher than in the decade after the global financial crisis and closer to pre‑financial crisis levels.
- Term premia have decompressed at the 10‑year level in the U.S. and many other countries.
- Quantitative tightening and central bank balance sheets:
- Fed balance sheet growth during crisis episodes increased "roughly by a factor of 10."
- From the peak in 2022, "about 28 trillion" in assets on major central bank balance sheets has come down "by about one‑quarter already."
- Quantitative tightening has proceeded in an orderly fashion, but the main risks to monitor are potential drains on reserves and increased price sensitivity of buyers that could raise volatility around data releases.
- Leverage and maturity/liquidity mismatches:
- Leverage and maturity mismatches exist across financial sectors; not all institutions are prudentially regulated.
- Sudden bursts of uncertainty can force unwinds and forced deleveraging, amplifying downward asset moves (example: August episode with sharp sell‑off and rapid rebound by longer‑term investors).
- Sovereign–bank nexus and fiscal trajectories:
- Global debt‑to‑GDP rose sharply during the pandemic; fiscal outlooks imply debt‑to‑GDP may continue to rise in many countries.
- Authorities in advanced economies and major emerging markets generally retain room to adjust fiscal positions through spending and revenue measures; not viewed as an immediate financial stability concern for major jurisdictions.
Regional implications and country notes
- United States:
- No comment on specific election outcomes; policy uncertainty is elevated globally this year with many countries electing or having elected new governments.
- Volatility in longer‑term yields has increased and is consistent with more data‑dependent policy and normalization of asset purchases.
- Africa / Sub‑Saharan Africa:
- Base levels of global interest rates are moving in a common fashion; frontier markets with market access have seen spreads compress and issuance resume in 2024.
- Inflation remains high in some countries (explicit example: Nigeria has inflation "at some 30 percent").
- For countries without market access, many are in IMF programs; engagement and debt work continue, including through the Common Framework.
- China:
- Recent easing of monetary policy: cuts in interest rates and PBoC asset purchases have eased financial conditions markedly; equity markets rallied and longer‑term bond yields declined.
- Authorities have taken measures to address real estate sector stresses (mergers of banks, use of asset management corporations (AMCs)); large banks have strong capital and liquidity buffers.
- Vulnerabilities to monitor: asset deterioration from the property slowdown, capacity of AMCs to absorb assets, stability of smaller banks, and exposures to local government financing vehicles.
- United Kingdom / Defined Contribution pensions:
- Liquidity mismatch risks noted with DC pensions shifting toward unlisted assets; Bank of England and FCA are focused on modelling stress and addressing mismatches.
Policy guidance, recommendations, and "vigilance"
- Monetary policy frameworks:
- Inflation‑targeting regimes and credible monetary policy frameworks have supported resilience in major emerging markets during the rate‑hike cycle and remain important as the cycle reverses.
- Central banks should weigh both domestic and external conditions when adjusting policy to maintain medium‑term inflation convergence.
- Financial sector policy priorities:
- Three priorities for developing economies: strengthen banking regulation and capitalization; ensure sound monetary policy frameworks; address overall indebtedness and engage early with creditors where needed.
- Continue capacity building on regulatory issues and prudential frameworks for banks and non‑bank financial institutions.
- Sovereign debt and creditor engagement:
- For countries with debt challenges, early engagement with creditors (including through Common Framework arrangements) is important.
- Regulation and standard setting:
- Progress has been made on post‑crisis banking regulation and internationally agreed standards (Basel III); implementation delays in some major jurisdictions are a concern and could jeopardize the international standard‑setting process if prolonged.
- Monitoring and operational readiness:
- Watch funding conditions and market functioning (money markets, Treasury markets) as central bank balance sheets normalize.
- Monitor reserve levels and the transition from central bank demand for assets to more price‑sensitive private buyers to anticipate potential volatility spikes.
- For policymakers: remain vigilant—vigilance includes maintaining macroeconomic stability, credible monetary frameworks, targeted interventions where needed, and active supervision of liquidity and maturity mismatch risks.
Key numeric and timing details preserved from the press briefing
- Press briefing date: October 22, 2024.
- IMF contact: Phone: +1 202 623-7100; Email: MEDIA@IMF.org.
- Speakers listed: Tobias Adrian; Jason Wu; Caio Ferreira; Moderator Alexander Müller.
- Election timing cited by a questioner: "in 14 days."
- Nigeria inflation cited: "at some 30 percent."
- Fed balance sheet growth: increased "roughly by a factor of 10."
- Major central bank combined balance sheet peak in 2022: "about 28 trillion" and has come down "by about one‑quarter already."
- Noted month of a short market sell‑off: August.
Transcript of Global Financial Stability Report October 2024 Press Briefing — October 22, 2024