Nigeria’s and other emerging economies’ persistently rising benchmark interest rates pose a threat to financial stability, according to the International Monetary Fund.
According to Akahi News, a brand-new report titled “Interest Rate Increases Volatile Markets Signal Rising Financial Stability Risks” made this clear.
The global lender noted that in order to prevent pressures from becoming ingrained, central banks facing persistently high inflation will need to accelerate monetary policy tightening.
It stated that persistent geopolitical risks, persistent economic outlook deterioration, and inflation at multi-decade highs are the primary challenges facing the financial system.
The highly uncertain global environment poses a threat to financial stability, as central banks continue to tighten financial conditions, according to the report.
It also mentioned how quickly and at a slower rate assets are currently traded at a given price because of the fluctuating interest rate.
In part, the report stated:Nonbank financial institutions like insurers, pension funds, hedge funds, and mutual funds, as well as governments with a lot of debt, are more vulnerable financially.Entities with stretched balance sheets are feeling the effects of rising rates.
“At the same time, due to fluctuating interest rates and asset prices, the ease and speed with which assets can be traded at a given price have deteriorated across some key asset classes.If a rapid, disorderly repricing of risk occurs in the coming months, this lack of market liquidity, combined with the vulnerabilities that already exist, could amplify it.
“To tame the rising inflation rate, the Monetary Policy Committee of the Central Bank of Nigeria raised the benchmark interest rate from 14 to 15.5 percent last month.”