The IMF Chief, Kristalina Georgieva, cautioned that the banking sector’s instability poses a threat to the world’s financial stability.
What Happened? Georgieva explained that the increase in interest rates had resulted in pressure on debts, causing “stresses” among lenders and in the leading economies.
According to a report by The Guardian, the Bulgarian economist projects that the world economy to grow by only 3% this year due to the combination of rising borrowing costs, the war in Ukraine, and the effects of the Covid-19 pandemic on the economy.
The IMF chief has added her voice to a growing number of economic leaders warning about increased risks to financial stability due to recent developments in the banking sector. This includes the collapse of Silicon Valley Bank and the Swiss-government brokered rescue of Credit Suisse by UBS.
See also: Kotak Mahindra Bank CEO Urges Financial Sector Policy Overhaul Amid Reliance Capital Crisis
Rough Patch For Banks: Investors are closely watching shares in Deutsche Bank following a sell-off in banking stocks on Friday.
Georgieva, speaking at a conference in Beijing, highlighted the stresses and vulnerabilities created by the rapid transition from a prolonged period of low-interest rates, to much higher rates necessary to fight inflation, particularly in advanced economies.
The European Central Bank (ECB) has warned that the recent banking turmoil would have real-world effects on business and growth. The ECB vice-president, Luis de Guindos, expressed concerns that problems in the banking sector could lead to lower growth and dampen inflation in an interview with Business Post.
Image by FinnishGovernment on Flickr
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