Indian finance minister Arun Jaitley speaks during a discussion at the 2016 Annual Meetings of the IMF and the World Bank in Washington, DC. Photograph: (AFP)
Indian finance minister said accommodative monetary policies in advanced economies could adversely affect emerging market
At the annual fall meeting of the International Monetary Fund and the World Bank, Indian finance minister Arun Jaitley warned about the risks of low and negative interest rates and "significant loan impairments" in the banking system to the global financial stability.
In an effort to guard against these risks, Jaitley said policy frameworks will need to be strengthened. He advocated "deleveraging" balance sheets and accumulating buffers to spur growth.
"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.
The minister said prolonged accommodative monetary policies in advanced economies will have serious implications for the emerging market and developing economies (EMDEs), including spillovers.
Voicing concerns that normalisation of the US monetary policy could have adverse effects globally, he said the central banks in major advanced economies should be mindful of financial stability risks arising out of monetary policy normalisation.
"However, risks to global financial stability persist because of low and negative interest rates, the overhang of private debt and significant loan impairments in the banking system," he said.
Jaitley said though the global financial stability appeared to have improved with easing financing conditions, he warned that the risks to global stability would have deeper implications for the IMF and the World Bank too. In all likelihood, the bodies could be pressed with larger demands on their resources.
Both the global financial institutions need to be adequately resourced, specifically to meet a wider canvas of development aspirations arising out of the Sustainable Development Goals, he said.
(WION with inputs from PTI)