IMF warns of more market sell-off as central banks adjust policy

The International Monetary Fund has warned of a further sell-off in the market such as central banks He tried to combat high inflation and ease epidemic stimulus measures.

Market players started the year on optimism, anticipating some economic momentum on the back of the easing of Covid-19 restrictions, which is likely to provide a boost to stocks. but since Russia’s unprovoked invasion of Ukraine On February 24, those expectations worsened — with more supply chain shocks and higher energy prices.

“There is definitely a risk of more aggressive selling,” Tobias Adrian, director of monetary and capital markets at the International Monetary Fund, told CNBC on Tuesday.

“The intended consequence of monetary tightening is a tightening of financial conditions to slow economic activity and I would not be surprised if we see a certain amount of readjustment of asset valuations in the future and that could be in equity markets as well as in corporate bond markets and sovereign markets.”

The Fund’s warning comes at a time of high uncertainty for some of the major central banks.

The US Federal Reserve It expects to raise interest rates six more times in 2022, while European Central Bank It confirmed last week that it will end its asset purchase program in the third quarter.

However, this monetary tightening could be accelerated if inflation remains elevated, which could affect market movements. The eurozone, for example, is registered Another record level of inflation Figures last month 7.5% YoY; and the The United States recorded the highest consumer price numbers since 1981.

“The risk of inflation expectations deviating from central bank inflation targets is growing, prompting policy makers to take tougher action,” the International Monetary Fund said on Tuesday in its latest session. Global Economic Prospects Report.

In its latest economic assessment, the International Monetary Fund said high inflation will continue for longer than previously expected. He also estimated that the inflation rate will reach 7.7% in the United States this year and 5.3% in the eurozone.