The IMF said in the report that the ultra-loose monetary policy triggered "many market booms and rising financial leverage". With the tightening of credit, these booms may end in a disorderly way and pose a threat to economic recovery.
In an interview with the media on Tuesday, Tobias Adrian, head of the IMF's monetary and capital markets and head of the report, explained that the market impact may come from the central banks themselves, for example, when they tighten monetary policy faster than expected. Given that many risky assets are overvalued, we are worried that there may be a large-scale selling.
The IMF pointed out in the report that despite some recent market fluctuations, compared with the GFSR report in April, with the support of strong profits and loose policies, global stock markets are still rising further. At the same time, the stock price dislocation in most markets is also at a high level relative to the fundamental value. However, higher valuation and more sensitivity to changes in the trend of national debt mean that the stock market will be significantly re-priced in the case of sudden changes in economic prospects or unexpected changes in policies.
(Source: International Monetary Fund)
The global real estate market, which also benefits from the epidemic, is also facing the same risks. In the report, IMF predicts that in the worst case, house prices in developed countries will fall by 14% in the next three years, while the decline in developing countries may reach 22%.
(Source: International Monetary Fund)
The IMF also stressed that although there are concerns about the downward trend of housing prices, the banking system that has learned from the experience of the subprime mortgage crisis has made remarkable achievements in the qualification examination of lenders, which also puts the banking system in a more stable position in the face of housing price fluctuations.
In addition to warning of risks, Adrian also gave another view on the current debate on "bargain hunting" on Wall Street: when the market fluctuates (downward), the threshold for forcing the central bank to rescue the market may be much higher than market expectations.
Adrian said that in the context of a significant increase in inflation, the threshold for the central bank to intervene in the market will become very high. At present, central banks are facing a challenging period. If the water supply is relaxed, it will help the real economy and increase inflation, and the austerity policy will have the opportunity to finally control inflation, but there will be a "very high price" during the period.
At present, the IMF's view on inflation is still finally controllable, but the process of reducing inflation may take longer than expected. Adrian said that we have seen higher and more lasting inflation than expected, and now the channels that trigger inflation are completely different from what we have seen before.