The International Monetary Fund has warned that the continuous rising benchmark interest rates in Nigeria and other emerging economies are risks to financial stability.
This was made known in a new report titled “Interest Rate Increases Volatile Markets Signal Rising Financial Stability Risks”.
The global lender noted that central banks who are faced with persistently high inflation will have to accelerate monetary policy tightening as a means to prevent pressures from becoming entrenched.
It pointed out that the major challenges facing the financial system include inflation at multi-decade highs, continuing deterioration of the economic outlooks in many regions, and persistent geopolitical risks.
The report further disclosed that financial circumstances remain tightened as central banks continue to raise interest rates, hence the highly uncertain global environment risks financial stability.
It also pointed to the deteriorating rate and speed with which assets are currently traded at a given price due to the volatile interest rate.
The report partly read: “Financial vulnerabilities are elevated for governments, many with mounting debt, as well as nonbank financial institutions such as insurers, pension funds, hedge funds and mutual funds. Rising rates have added to stresses for entities with stretched balance sheets.
“At the same time, the ease and speed with which assets can be traded at a given price has deteriorated across some key asset classes due to volatile interest rates and asset prices. This poor market liquidity, together with pre-existing vulnerabilities, could amplify any rapid, disorderly repricing of risk, were it to occur in the coming months.”
“Last month, the Monetary Policy Committee of the Central Bank of Nigeria raised the benchmark interest rate from 14 to 15.5 per cent in order to tame the rising inflation rate.”
