Author: Sir Amar – Technical Analyst

The International Monetary Fund (IMF) released its Global Financial Stability Report (GFSR) on Tuesday night, and the report highlights the many risks related to Russia’s invasion of Ukraine. Although no catastrophic event has yet materialized, the IMF believes risks have increased “on several fronts”. The IMF believes the war in Ukraine could test the resilience of the financial system; despite the strength, it has shown in recent years. A sudden reassessment of risk as a result of an escalation of war and consequent escalation of sanctions may expose and interact with some of the vulnerabilities accumulated during the pandemic, which may result in a sharp fall in asset prices.

Most major banks have sharply reduced their exposure to Russia in recent weeks and overall exposure remains relatively low. According to the report, European lenders are more likely to face difficulties in the future. Counterparty risk is another major threat highlighted by the IMF as many institutions remain indirectly exposed to Russia. Low market liquidity, funding shortages, cyber-attacks, and market disruptions were some of the threats the IMF listed in its comments on the Russia-Ukraine conflict. The IMF is lowering global growth forecasts in view of the Ukraine war and inflation and global growth slowed to 3.6% from 4.4% in January forecasts.

In particular, the IMF said that a disorderly tightening in global financial conditions would pose a particular challenge for countries with high financial vulnerabilities, unresolved pandemic-related challenges, and significant external financing needs.