IMF warns of ‘turbulence’ in financial markets as central banks hike interest rates

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The International Monetary Fund (IMF) warned of further turbulence ahead for financial markets as governments worldwide shift gears into recovery mode.

Central banks’ moves to tighten monetary policy and curb rising inflation could push riskier stocks deeper into the red even as policymakers pledge a smooth transition, CNBC reported, citing IMF’s Tobias Adrian, financial counsellor and director of monetary and capital markets.

He added that financial conditions would be further tightening, which means that risk assets such as equities could sell off further.

Adrian noted that the market reaction will hinge mainly on central banks’ ability to communicate their intentions.

“We are estimating, for example, for an unexpected further tightening of 50 basis points, you could see a substantial further sell-off in the equity markets,” he said, adding that some sectors would be worse affected than others.

The IMF official said that such disruption could translate into crypto markets, which have exhibited an “increase in correlations” with traditional financial markets.

US Federal Reserve Chairman Jerome Powell hinted, on Jan. 26, that it could start raising interest rates as soon as March.