Washington | India has warned about the risks of low and negative interest rates and “significant loan impairments” in the banking system to the global financial stability and called for “delevaraging” balance sheets to spur growth.
“Disorderly deleveraging of private debt could also impact growth. In order to guard against these risks, policy frameworks would have to be strengthened by accumulating buffers and deleveraging balance sheets,” Finance Minister Arun Jaitley said at the annual fall meeting of the IMF and the World Bank.
“Gains from product and labour market reforms and strengthening of risk management practices to address balance sheet vulnerabilities would be helpful in further enhancing resilience,” he said.
In his address, Jaitley said global financial stability appears to have improved with easing external financing conditions and some recovery in commodity prices.
“However, risks to global financial stability persist because of low and negative interest rates, overhang of private debt and significant loan impairments in the banking system,” he said.
Warning that growing populism and isolationism could lead to further deterioration of global trade, he advocated for multilateral efforts to boost trade to support global growth.
“The emerging market and developing economies (EMDEs) as a whole have performed better than the advanced economies, with India registering robust growth. However, the outlook in the EMDEs remains uneven and generally weaker than in the past due to challenging macroeconomic conditions arising from weak global demand and difficulties faced in wake of adjusting to lower commodity revenues,” he said.
According to the minister, prolonged accommodative monetary policies in advanced economies will have serious implications for the EMDEs, including resultant spillovers.
There are also concerns that normalisation of the US monetary policy could have adverse consequences for global financial market volatility and capital flows to EMDEs.
Central banks in major advanced economies should be mindful of financial stability risks arising out of monetary policy normalisation, he said.