Biased appropriation of Covid antibodies chances fueling financial vulnerability: IMF

Overview

• Post By : Kumar Jeetendra


• Source: PTI


• Date: 28 Jan,2021

The IMF has warned that the inequitable distribution of COVID-19 vaccines risks exacerbating financial vulnerabilities, particularly for frontier market economies, though their approval and rollout have boosted expectations of a global recovery and increased risk asset rates.

In its Global Financial Stability update published on Wednesday, the International Monetary Fund underlined that before the coronavirus vaccines are widely available, the market rally along with the economic recovery remain based on continued fiscal and monetary policy support.

“Inequitable distribution of vaccines risks exacerbating financial vulnerabilities, especially for frontier market economies, it said.

A continuing rebound of portfolio flows provides better financing options for emerging market economies facing big rollover needs in 2021, it said.

Policy accommodation has mitigated liquidity strains up to now, but solvency pressures may resurface in the not too distant future, particularly in riskier segments of credit markets and businesses hit hard by the pandemic, the IMF said, adding that credit concerns and profitability challenges at the low-interest-rate environment may weigh on banks’ ability and willingness to increase in the future.

Policy-makers should continue to give support until a sustainable recovery takes hold: under-delivery may jeopardise the healing of the international economy. However, with investors betting on a persistent policy backstop and a feeling of complacency permeating markets as asset valuations grow further, policymakers should be conscious of the dangers of a market correction, IMF said.

With monetary policy expected to remain accommodative in coming years, policy-makers should address rising vulnerabilities to prevent putting growth at risk in the medium term, it said.

Tobias Adrian, Director of the IMF’s Monetary and Capital Markets Department, said that a complete end to this pandemic will be a medical solution.

So, the vaccine news was a really good one and it’s driven up valuations.

Now we’re in a place where the easiness of financial conditions is helping economic activity, is helping countries and corporations to issue debt. However, it’s also accompanied by a run-up in asset prices, especially in some sectors. And we do worry that there are stretched valuations in certain sectors. For instance, in the tech sector, we’re detecting some frothiness as, as you point out. And there’s certainly a risk of a market correction here, Adrian said.

Even though there was a really sharp economic contraction, the support on the monetary side and the financial side has contained the bankruptcy so far.

So the banks are in good shape. That is extremely important from a financial stability viewpoint. On the market side, of course, there is the stress that we could see for the sell offs, he said.

Last year there was a really sharp selloff that led to central banks stepping in and actually backstopping a very broad segment on financial markets.

We could certainly see further sell offs sooner or later, at least in some segments of the current market, he said, adding that this might directly impact financial stability in a negative way. But it could lead to a tightening of financial conditions.

Fabio Natalucci, Deputy Director of the Monetary and Capital Markets Department said uneven supply of vaccines create this probability of asynchronous recovery.

There’s a health situation for first of all, that has to be addressed. There is also then an issue in terms of recovery, he said. If there’s asynchronous recovery, countries lag behind, they can shed market access, monetary conditions tighten.

Then you’d see really an increase in poverty, you could see a growing inequality. So that’s why it’s important that we handle this as a global issue, at the international level, and there is an equitable distribution of vaccines throughout the planet, he said.

The total number of global coronavirus instances has topped 100.8 million while the deaths have attained to more than 2.17 million, according to the Johns Hopkins University.