Investors take bigger risks due to low interest rates, IMF says
The International Monetary Fund has warned that the low-interest rate environment is driving investors to take on more risk in pursuit of larger returns, which is threatening global financial stability.
The International Monetary Fund (IMF) has warned that investors are taking on bigger risks in search of higher returns as a result of the low-interest rate environment.
In its latest economic assessment, the IMF warned that investors riskier appetite poses a significant threat to global financial stability.
‘The search for yield among institutional investors — such as insurance companies, asset managers and pension funds — has led them to take on riskier and less-liquid securities. These exposures may act as an amplifier of shocks,’ IMF’s financial counsellor Tobias Adrian said.
IMF warns of global economic downturn
The fund also told developed countries they should be willing to use government finances to mitigate the impact of a severe economic downturn.
Earlier this week, the IMF warned of weakening economic performance and risks to future growth posed by a myriad of macro-economic headwinds, particularly the ongoing US-China trade war.
However, central banks have already slashed interest rates and provided multiple rounds of stimulus to support ailing economies, which has in turn led to investors taking advantage of exceptionally low borrowing costs.
Global corporate debt pile rises to $19 trillion
Low interest rates have led to corporates borrowing significant sums of money, but with economic growth slowing, their ability to pay down the debt is weakening.
In fact, the IMF calculates that a total of $19 trillion worth of debt is held by corporates that are unable to cover interest costs from their earnings.
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