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Banks creating downside risks for global growth: IMF chief economist

Rate of interest rises have elevated banks’ vulnerabilities — and their response presents a big threat to international progress, the Worldwide Financial Fund’s chief economist warned Tuesday.

“We’re involved about what now we have seen within the banking sector, significantly within the U.S. however possibly additionally in different nations, may do to progress in 2023,” Pierre-Olivier Gourinchas informed CNBC’s Joumanna Bercetche in Washington, D.C.

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Central financial institution hikes have elevated funding prices for banks, whereas lenders have additionally seen some losses in property like long-term bonds.

“Banks are in a extra precarious state of affairs. They’ve wholesome cushions, however it’s actually going to make them be just a little bit extra prudent and possibly minimize down lending considerably,” Gourinchas stated.

In a single state of affairs, the IMF sees banks tightening lending additional than at current, bringing its forecast of two.8% international progress in 2023 all the way down to 2.5%.

Gourinchas stated its fashions had additionally forecast a extra opposed state of affairs the place monetary stability just isn’t contained.

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“That may result in large capital flows from the remainder of the world attempting to return to security, going to U.S. Treasurys, greenback appreciation, growing threat premia, lack of confidence,” he stated. On this state of affairs, the IMF sees the world economic system rising at about 1% for this yr. However the dangers of this are comparatively low, Gourinchas famous, at about 15%.

The IMF on Tuesday launched its newest international progress report, which contained its weakest medium-term progress expectations for greater than 30 years.

Monetary stability has been within the highlight in latest months, amid the collapse of a number of U.S. banks, the snap sale of Credit score Suisse in Europe, and turmoil within the U.Okay. bond market that just about toppled pension funds final fall.

Gourinchas informed CNBC that the controversy round central financial institution fee hikes had shifted from progress versus inflation to monetary stability versus inflation.

He stated central banks and monetary authorities have proven they’ve the instruments to deal with pockets of instability, for instance U.S. regulators guaranteeing deposits for Silicon Valley Financial institution clients and Financial institution of England gilt purchases. “Financial coverage ought to keep targeted on bringing inflation down, that is our suggestion at this level,” Gourinchas concluded.