Transcript

GFSR Press Briefing 2022 Annual Meetings

October 11, 2022

Speakers:

Tobias Adrian, Financial Counselor and Director of the Monetary and Capital Markets Department

Fabio Natalucci, Deputy Director of the Monetary and Capital Markets Department

Antonio Garcia Pascual, Deputy Division Chief of the Monetary and Capital Markets Department

Randa Elnagar, Communications Officer

Ms. Elnagar: Good morning everyone, and welcome to the Annual Meetings and the Global Financial Stability Report press conference. It is so great to see you here again in person. I am Randa Elnagar of the IMF Communications Department. By now you should have received the Global Financial Stability Report online, and we are going to be looking forward to having your questions.

Before we start, let me introduce our speakers here today: Tobias Adrian, Financial Counsellor and Directorate of the Monetary Capital Markets department, Fabio Natalucci, Deputy Director of the Monetary and Capital Markets Department, and Antonio Garcia Pascal, who is Deputy Division Chief in the Monetary and Capital Markets Department.

Before we start, I am going to kick-start the conversation with Tobias and ask him a couple of questions to get this conversation going. Tobias, how do you assess global financial stability currently with very high and persist inflation and asset price volatility?

Mr. Adrian: It is great to see you all in person. Global financial stability risks have increased with a balance of risk that is skewed to the downside. Amid the highest inflation in decades and extraordinary uncertainty, markets have been extremely volatile. Risk assets such as equities and corporate bonds have declined sharply. A deterioration in market liquidity has amplified price moves, and financial conditions have tightened globally. In many advanced economies, financial conditions are now tight by historical standards. In some emerging markets, they have reached levels last seen during the height of the COVID-19 crisis. With conditions worsening in recent weeks, key gauges of systemic risk such as higher dollar funding costs and counterparty spreads high have risen. There is a risk of disorderly tightening in financial conditions that may interact with preexisting vulnerabilities. Investors may further reassess the outlook if inflationary pressures do not abate as quickly as currently anticipated or if the economic slowdown intensifies.

Ms. Elnagar: Tobias, thank you. What is the most important development that you are thinking about right now and watching?

Mr. Adrian: In emerging markets, rising rates, worsening fundamentals, and large outflows of capital have pushed up borrowing costs notably. The impact has been especially severe for more vulnerable economies where 20 countries are either in default or trading at distress levels. Unless market conditions improve, there is a risk of further sovereign defaults in frontier markets. Our global stress tests for banks show that under a severe downturn scenario, 29 percent of emerging market banks could breach minimum capital requirements. Of course, corporate credit is also facing an increased risk of default. We have also seen turbulence in markets in some specific countries.

Ms. Elnagar: Tobias, what is your advice to policymakers?

Mr. Adrian: Central banks must act resolutely to bring inflation back to target, to keep inflationary pressures from becoming entrenched, and to avoid de-anchoring of inflation expectations. The high uncertainty clouding the economic outlook hampers policymakers' ability to provide explicit and precise guidance about the future path of monetary policy. Clear communication about the policy function, the unwavering commitment to achieve the mandate of price stability, and the need to further normalize and in some cases tighten monetary policy is crucial to avoid unwarranted market disruptions.

Ms. Elnagar: Thank you, Tobias. We can open the floor now for questions. I want to advise our viewers online you can ask your questions via WebEx. Kindly use the raised hand option to ask your questions. We are going to turn into the room and start here. Let me start. Chris, the Financial Times.

Question: Financial Times. Thank you very much. I wonder, this morning the Bank of England is set to intervene yet again with a financial stability issue arising in the index-linked gilt market following the wider gilts market last week. Is the only way of really solving this for the government to reverse its mini-budget unfunded tax plans?

Mr. Adrian: That is an excellent question and let me put the question into context. On September 23, the government announced a new plan in terms of fiscal expenditures, and that triggered rising interest rates. The rise in interest rates is what would be expected given the change in the outlook for fiscal policy, but, of course, some of that rise has been disorderly. There were spirals, disorderly amplification mechanisms at play that led to a very sharp and quick increase in yields, threatening financial stability. So the Bank of England stepped in with targeted and temporary asset purchases at the longer end of the gilt market, and that did lead to a drop in yields. They are now rising again and the question that was asked is whether there is ultimately any way to stop the rise in yields unless there is a shift in fiscal policy. So I would say there – certainly – a change in the fiscal policy would change the trajectory of interest rates going forward because the expansionary fiscal policy basically triggered a shift in expectations as to what monetary policy is going to do going forward. And, with the expansionary fiscal policy, the Bank of England would have to raise interest rates that much more in order to contain inflation and to get inflation back to the mandated objective. One part of the answer to the question is, yes, the shift to fiscal policy would certainly change the trajectory. Now, you were asking is that the only way to change the trajectory in yields. As you saw in the recent two past weeks, asset purchases can also change yields in the marketplace; but, of course, the Bank of England has the inflation price stability objective, and that is going to stand in the way of permanently having lower interest rates.

Mr. Natalucci: I can maybe step in for a second broadening the question. We are essentially seeing a slight regime shift in terms of macro, where we move from low inflation environment with low rates, low volatility, to an environment where inflation is higher. It is decades higher, decades-level higher. We see volatility higher, and so markets are fragile. We have seen vulnerability that has been building over the last decades plus. Whether this is liquidity mismatch, financial leverage, use of leverage, maturity mismatch—and so that fragility in some sense makes the financial risk much more elevated. We have seen some pressure on the plumbing. Maybe you can think of the UK episode just as a warning shot. We also have seen waves of stress that is propagated to the system through this deleveraging that is affecting UK assets; results affecting assets across the globe. We have seen high correlation between UK rates and US or European rates. We have seen pressure in risk assets in the US or in other parts of the globe. So I think it is that wave of stress has implication for asset allocation, for correlation across assets. So clearly central banks should not pivot away from fighting inflation. They have tools they can use to address market dysfunction. There are repo facility, asset purchases. Clear communication here is crucial I think in terms of separating what is done in pursuing optimal flexible inflation targeting vis-a-vis addressing dysfunction in financial markets. Finally, policymakers need to be prepared for what could be a bumpy ride going forward. Some of these cracks, some of this pressure, some of this weight, those are fragile markets, and that is why it is so important to have a steady hand for these fragile times.

Question: Thank you. I have two questions. Firstly, about the Federal Reserve. The Federal Reserve has been hiking interest rates in recent months. How has it impacted emerging markets; and as the rate hike continues, do you expect bigger spillover effects?

So, secondly, about China's property sector stress. The report made analysis on it. Do you expect that stress to lead to financial instability or China, and what is your suggestion for China's policymakers? Thank you.

Mr. Adrian: Thank you so much for those questions. The Federal Reserve in the US has been increasing interest rates in order to get inflation back to its 2 percent inflation target. We view the path of interest rates in the US as appropriate, so we do view the tightening in the US as the appropriate step to achieve the objectives, the inflation objectives, the price stability objectives, of the Federal Reserve. Of course, other countries are also changing their stance of monetary policy. Many countries around the world are also tightening monetary policy. You know, some of the exchange rate movements are driven by the differential stance of monetary policy. So, for example, some countries have not seen a decline of their currency vis-a-vis the dollar, but it is true that broadly there is a decline of exchange rates vis-a-vis the dollar; and so there are two or three reasons for that. One is a differential stance in monetary policy. For example, when you look at a country like Japan where monetary policy continues to be expansionary, while the US is tightening very sharply, so you have seen an adjustment in exchange rates there.

Secondly, there are terms-of-trade shocks in many economies. Europe comes to mind here where, of course, the imports of energy, oil, gas from abroad, have driven to very large terms-of-trade shock, and that has tended to put depreciation pressures on the euro. So those are some of the reasons why exchange rates are moving. Most of those movements we currently see as being driven by fundamentals. There is differentiation across countries. These are necessary macroeconomic adjustments relative to the different stance of policy, relative to different economic shocks, and they are not necessarily disorderly at the moment.

Certainly, financial conditions are tightening globally, and that is true in the US. It is true in many countries around the world, and there are certainly spillovers of the tightening onto other countries as stronger dollar, higher interest rates, of course, are tightening financial conditions for countries around the world, and that might well continue going forward as well. Let me also point out that in the report we have a chart on the FX swap basis, so this is an indicator of cross currency funding pressures, and that has widened as well across a range of countries.

Now, turning to your second question, which is about the Chinese property market, so we have seen stress in the Chinese property market. Of course, compared to recent years, the growth rate in China has been declining to some degree, and that is one contributing factor to the slowing of the property market. But also, of course, there has been a lot of investment in properties over many years, so that has also led to a demand and supply imbalance in some regions in some cities. When we look at property developing companies in particular, their stock and bond prices have been declining, as the prospects for sales going forward, for example, have been readjusted. So sales have been declining steadily. Now, the stress in property markets is, of course, something that the policymakers in China are very focused on, and so necessary policy steps are being taken. But there is the potential for more turbulence, so there is the potential for exposure to the banking system, for example, or to the market-based financial system, and, again, we are flagging some of those risks in the report and we are giving some precise numbers.

Mr. Natalucci: You may remember the October Financial Stability Report last year. We had a box where we were qualitatively walking through some of the steps and how contagion and spillover effects would work from the property development sector to the real estate to the banks and to corporates and to local governments. I think what we are seeing here in some sense is a crystallization of some of these risks. As Tobias mentioned, essentially liquidity issue in the property development sector turning into solvency issue. We have an analysis of scenario in the report where we look at what happened if crystallization of earnings decline, if [inaudible] inventories are value on market prices, and we take account of outstanding financial condition, you would find that 45 percent of the property developers would be unable to make interest payments with earnings, and 20 percent of them would be insolvent. You can see the liquidity issue essentially starting to turn into insolvency. In terms of the propagation channels of spillovers, one spillover would be to the banks. Banks are exposed to both the property developers--it's about 8 percent of their lending--and to the real estate for another 20 percent of mortgages. Now if you apply and assume that 10 percent of these holdings becomes non-performing and you lower the recovery value, the analysis shows that 15 percent of banks, or about 10 percent by asset, would not meet the 4½ percent regulatory minimum of capital.

As for the spillover to the local government sector, a big chunk of their revenues come from land sales, for example, so with declining land sale, the revenues get affected. You see pressure on local government financing vehicles. So you can see how some of these risks are crystalizing. So in terms of policy and what we advise the Chinese authorities to do, I think there is an urgent need for action at the central government level to restore confidence in the housing sector, address financial stability, and prevent some of the spillover action. For example, complete the unfinished housing to essentially put a floor on the housing market, restore confidence in the housing market, and also address the business model of the property developers. It is a combination essentially of financial stability policies, as well as structural measures that actually deal directly with the business model of property developers.

Question: Financial Times. You mentioned the measures that the Bank of England has had to take to ensure financial stability. I am just curious if you think this is going to be an approach that other central banks globally are going to have to adopt as they continue to raise interest rates to fight inflation. Is this something that we can maybe anticipate from the Fed, and what kind of communication challenges do you anticipate could come from this?

Mr. Adrian: Thanks so much for this question. At this point we do not anticipate these actions being necessary in other countries. But, of course, we do flag many vulnerabilities in financial markets. So now there is leverage in many countries around the world and many segments of the market, in particular in the nonbank financial system. There are maturity mismatches, liquidity transformation, hidden leverage; and so there could certainly be financial stability problems and market dysfunction in other countries as well. It is not our baseline, but in the downside risk scenario, it could materialize. The kind of tools that the Bank of England has deployed, i.e., lending facilities, lending of last resort, repo facilities, outright purchases of risk assets in the market segment where the dysfunction is taking place, these are classic actions of central banks that is in the toolkit of most central banks around the world. So in that sense, it is classic central banking to do what the Bank of England is doing. It is fully endorsed by us, but it is not in the baseline for other countries at this point. But, of course, there is always a tail risk that financial stability instances or financial instability could occur in other countries as well. It is just not the baseline. It is a downside risk.

Question: International Financing Review. How important is it for the US or the Fed to pound down inflation to 2 percent, with the hikes, for financial stability? Is that a good target? Should it be a different one? Has it been discussed as a coordinated thing worldwide as to what the target is, because it is affecting a lot of the EM market and its interest rate, so I was wondering whether it was international coordination and there was a target that was being considered to be optimal in that sense?

Mr. Adrian: Thanks so much. There is certainly a debate, or there has been a debate around the level of the target, but it is really a debate that was done in the context of very low inflation. At that time, people were asking whether inflation targets should be higher than 2 percent in the context of deflationary pressures. Changing the target in the current environment would be unwise because it would feed into credibility problems of central banks, so if you are above target and then you raise your target, that is undermining credibility; and we have seen a number of examples of such changes in the history and generally that has not gone very well. The 2-percent target is generally viewed as a good objective. Of course, as I explained earlier, there are spillovers from tighter monetary policy in advanced economies, including the US, but other advanced economies as well onto other markets around the world. But it is important to note that most emerging markets do have high inflation as well, so a tighter stance of policy and tighter financial conditions is actually appropriate for many, not all, but many emerging markets around the world as well.

Mr. Natalucci: One thing to add. I think price stability is a prerequisite for sustained macrofinancial stability. That is why it is so important that central banks act resolutely to bring inflation back down to target. We want to see entrenched dynamics. We want to prevent inflation expectations from being de-anchored—essentially something that would damage their credibility that has been built over all these years. Also, communication is important. In clear communication--and this has to be a different kind of forward guidance than was given when we were at zero lower bound—cannot provide the same effective explicit guidance, but being clear in terms of the policy function of the central bank, what are the objectives; what are the steps to hit the objective, and what is the intertemporal tradeoff, and their commitment to bring inflation down. Again, this is a new world. I think we are going to face higher rates and high inflation probably for a while.

Going back to the previous question, it is important to distinguish between volatility and dysfunction. High volatility is something that is in markets. Investors will have to learn how to price liquidity. It is a different price than when you are at the zero lower bound. Dysfunction is another issue. That is when you think about lender of last resort tools to deploy. Again, price stability is a prerequisite to have growth and to have macrofinancial stability.

Question: Before we move to the room again I want to acknowledge one thing that we had received a question online similar to the Fed one, so I want to tag onto the Fed. He is asking again about the Fed and the stop-and-go monetary policy, so if you want to add a little bit before we turn to the room.

Mr. Adrian: Again, we are very comfortable with the kind of path that is currently priced into markets, which is very closely aligned with the dots of the Federal Reserve policymakers. We are very comfortable with the kind of expected path of monetary policy going forward. We think that this is necessary in order to get inflation back to target, and we do think that is the right monetary objective, is to go back to inflation target in the appropriate time. Of course, monetary policy is always conditional on economic developments, so there could be inflation surprises to the upside, for example. There could be worse-than-expected prints for real activity, and there could be a variety of other shocks globally, and so over time, monetary policy would always take those shocks into account and readjust what the optimal path is going forward.

Question: Thank you for taking my question. The Wall Street Journal. You wrote, Mr. Adrian, that we have yet to see a global systemic event, so from the answer to the last question, I take it to mean you think the UK situation is contained, but I am just wondering if you could elaborate on or clarify on what a global systemic event would look like?

Mr. Adrian: Absolutely. As you are saying, at the moment, our baseline is one where economic activity is slowing down. Inflation is coming back to target, where interest rates are increasing, financial conditions are tightening; but that is in a more or less orderly manner. Of course, there is a downside around that baseline, and when you look at Figure 2 in the GFSR, that shows you our quantitative assessment of how big this kind of downside risk is in the time series. So it shows you how big is the downside risk relative to other historical episodes. And so we are in the worst quintile here, so the only times where things were worse was in times of acute crisis, such as the euro crisis, the global financial crisis, or the 2020 COVID crisis. So, in that sense, we are certainly at a stressed moment. Again, the baseline is one where things continue to be orderly.

Now, in terms of spillovers from the UK to other countries, so we have, of course, seen that their yields are movements that are correlated to some degree, but we have not seen the kind of dysfunction spill over into other markets to date.

Mr. Natalucci: I think the core of the financial system, so the banking sector, is stronger than it was pre-GFC. So they have higher level of capital, better quality of capital, liquidity buffers, central bank counterparties. There have been a number of reforms put in place post-financial crisis that make the core of the system stronger. However, some risk has moved away towards the NBFI, the nonbank financial institutions. There are some risks, whether this is liquidity mismatch, whether this is financial leverage or interconnectedness with the banking system, we have seen a few episodes where stress in the periphery of the system came back to the banking sector from the back door, so I think that is where there are some more concern perhaps. We had one chapter in the Global Financial Stability Report that looks at open-ended investment Fund and maturity and liquidity mismatches there.

Clearly, you need to have visibility. Sometimes it is more difficult to have visibility into this corner of the periphery. There is probably financial leverage that we don't perceive. And the other thing is the cross-border effect. Some of it has to do with cross-border impact. That is why I think international cooperation and sharing information is so important, because something that happens in the periphery of the system may affect other countries either through the banking system or through other channels.

Question: Can you give us a sense of India's financial stability situation right now? And I would also like to have your comments on India's inflation situation and what the steps the Indian government is taking to address this.

Mr. Adrian: Monetary policy has tightened in India, similar to other emerging markets as well, where inflation has been above target, and certainly inflation has been above the RBI's target recently, so we do expect tightening of monetary policy going forward as well. In terms of financial stability, there are some preexisting vulnerabilities, both in the banks and in the nonbanking system, in India that are certainly still there and that are a cause of concern. We have flagged them in the Financial Sector Assessment Program that we did in India some time ago, but some of these issues remain in India.

Let me turn to Antonio to complement me on financial stability in particular.

Mr. Garcia Pascual: Sure. Thanks for the question. On the monetary policy side, I think Tobias addressed. The Reserve Bank of India has appropriately been tightening to fight inflation, inflation being above target; and since May, if my memory serves me well, it sort of delivers 190 basis points rate hikes and we think further tightening is needed to bring inflation to its target.

On the financial stability, the issues as Tobias will mention, they are longstanding, and they pertain both to the bank and nonbank. On the banking side I think the issue is related to a prudent underwriting standards to have adequate and build further capital, so recognize problem loans because that can be a drag. If they are left on the balance sheet, it can be a drag to future lending and the recovery for banking system, and those we see as the key issues.

Question: Thank you for taking my question. Glad to see everyone again after three years. I would like you to talk a little bit more about the financial situation in Sub-Saharan Africa. In your report, you talked about shocks and vulnerabilities, especially debt distress, many of those loans given by the IMF and the World Bank, of course. It always beats me how you give loans and [inaudible]. If you can talk a bit about debt distress in Sub-Saharan Africa and the situation there in general. I know Africa is a big continent, and you can give us some examples. And what you see there, what your fiscal policy recommendations are.

Mr. Adrian: Absolutely. These are excellent questions; and, of course, we do a lot of work in Sub-Saharan Africa, including in the financial sector, as well as on debt issues. Let me first note that the very sharp rise in food prices and commodity prices has hit many Sub-Saharan African countries very, very hard. Most countries are importers of food in particular, and this comes on top of previous crisis. The COVID crisis already hit Sub-Saharan Africa hard. Now we have this rise in commodity prices and, of course, the tightening of global financial conditions that we already discussed. So many countries are already in debt distress or are close to debt distress, so they entered the crisis with high debt, with high vulnerabilities, and now addressing those debt issues is certainly one of the priorities. Secondly, inflation is very high in many countries. So that has triggered tightening of monetary policy. There is a variety of shades across countries, but it is certainly also important to contain inflationary pressures. Finally, I would say that protecting the most vulnerable is very important. As you know, in the World Economic Outlook we are flagging, and in the Fiscal Monitor report as well, which is going to be released tomorrow, we are flagging that extreme poverty has been increasing recently, and so targeted fiscal policies to help the most vulnerable is particularly important in some Sub-Saharan African countries. Having said that, of course, in an environment with high inflation, an over-expansionary stance or more expansionary stance of fiscal policy is problematic for most countries, so in general we would want to see that fiscal policy is aligned with the objectives of monetary policy in these circumstances.

Question: Bloomberg. I was wondering about the Bank of England and the intervention that they have done. You talked about asset purchases. There is a bit of a problem with signaling because obviously asset purchases is being linked with quantitative easing, which is monetary loosening. We currently have a monetary tightening. The Bank seems to be wanting to extricate itself from these asset purchases at the moment and do more traditional liquidity operations. Is there a sort of fundamental issue that the Bank is going to struggle to sort of square this circle because asset purchases are difficult to operate just now?

Mr. Adrian: Let me just say again that what the Bank of England intended was to arrest market dysfunction in a specific segment of the longer-dated gilt market; and that has been reported to be associated with liability-driven investments in particular. So we saw a very rapid increase in longer-term interest rates following the September 23 announcement of the change in the budget, and once the Bank of England stepped in, yields came down very quickly, very dramatically. Now interest rates are rising again but they are not rising as quickly or abruptly as they were back in late September. So in that sense, of course, the Bank of England Bank of England does not want to see these disorderly increases in rate rises, but some increases in rate rises, of course, would be expected given the change in the budgetary outlook.

Now, having said that, as was already mentioned in the WEO press conference, there is an expectation of more announcements on the budget side, and that would be an important input into how longer-term interest rates are evolving going forward.

Mr. Natalucci: Maybe if I can add a couple of things. I think the Bank has been very clear that they are not targeting the level of interest rates. Those are backstop operation. They are aimed addressing dysfunction in the gilt market, whether this is the nominal market or whether [inaudible], but they are not targeting the level of rates. This is just about dysfunction in the markets and preventing essentially market dysfunction that may turn into financial stability issues. We are avoiding fire sales or deleveraging that would have an impact on the market itself. This is a backstop facility. The other point on the communication, it is really important to separate the pursuing of flexible inflation targeting from financial stability mandates. There are different tools that can be used. Communication about the separation of the two and the resolve of the bank to actually achieve the inflation mandate, I think that is something that is very important to communicate.

Question: I was wondering if you could talk about the role of trade in stabilizing the global financial market, and specifically if you can talk about Africa, Sub-Saharan Africa and Africa in general. They started implementing the Africa Free Continental Trade, and how can they integrate that into the global economy to boost and also stabilize the economy?

Mr. Adrian: Thank you for this important question. Trade is generally good for economic growth, and so we are certainly supportive of more integration across African countries and of Africa within the broader global economy. We do expect that more trade would be associated with more growth, so that is basically my answer.

Question: Project Syndicate. You have been asked a lot of questions about Britain, and I am sorry but this is not really a question about Britain but about the spillover. This problem began in one of the supposedly best regulated financial systems in the world. How confident are you that specifically the pension systems in other countries, and particularly the United States, are not going to be subject to the same issues because liability-driven investment is actually very widespread in the US as well. So you have talked a lot about the macro implications, but you have not told us whether you have looked specifically at the American pension system. And just one remark. Back in 2007, the leading British mortgage bank, Northern Rock, collapsed a year before the financial crisis, and this was considered to be a one-off, bizarre event, but it turned out to be a perfect blueprint for what happened in the US a year later.

Mr. Adrian: Thanks so much for this thoughtful question. We did the UK FSAP, the Financial Stability Assessment, in the UK last year. It was published I think in February of this year. And when you look at the recommendations, a lot of the recommendations are about deepening the understanding of risk-taking, i.e., maturity transformation, liquidity mismatches, and leverage in the nonbank financial system. So this is, you know, the kind of risk-taking that we have seen in LEIs, fits exactly into that bucket. Of course, the recommendations include to take necessary steps to make sure that risk-taking is appropriately regulated in this segment of the market; so better data, better regulation.

We did a Financial Sector Assessment in the US as well, and we also flagged that the nonbank financial system has pockets of risk and that appropriate regulations of those pockets of risks are a first order. We are certainly flagging many vulnerabilities in the nonbank financial sector in the Global Financial Stability Report. Again, our baseline is one where the future is a slight decline in economic activity and tightening of financial conditions, but these things evolve in a somewhat orderly manner; but there is a lot of downside risk around that, and I do want to be clear that these downside risks could certainly materialize, but it is not our baseline.

Mr. Natalucci: The only thing I would add was the point I was trying to make before. Yes, the core of the system is stronger. There are risks that migrated somewhere else. There are a number of vulnerabilities that have been building over the past decade. Volatility is higher, and we start seeing some warning shots in the plumbing, and there are these waves of deleveraging of different parts of the economy. Those are fragile times. Markets are fragile. Investors need to readjust the way they do asset allocation, the way they think about risk, the way they think about liquidity; what is the price of liquidity. That fragility I think is our concern. A tightening of financial conditions that is disorderly could interact with this vulnerability; it takes you into territory where financial stability is a risk.

Mr. Adrian: Or put differently, so quantitatively, the kind of level of risk that we are flagging at the moment is the highest outside of acute crisis.

Question: I have two questions. First of them, how to address risk in major economies, including Egypt, from a strong dollar? The second one is, you focus on the demand side in addressing inflation while encouraging central banks to raise rates. What about supply-side? Can we expect a plan from IMF to raise a supply to lower inflation?

Ms. Elnagar: Because we are on the topic of emerging markets and emerging economies tightening, Yolanda Morales is also asking about if emerging central banks began early tightening the early monetary policy, are they at risk to go too far in an aggressive policy? Can it be a financial risk?

Mr. Adrian: Thank you so much. Egypt, of course, has approached the Fund in order to ask for a program, and this is one of the roles of the IMF, is a lender of last resort to help countries that are hit by adverse shocks. Egypt is certainly one country that has been hit by a series of negative shocks. Perhaps Antonio can say a little bit more about that in a moment.

In terms of Mexico, Mexico was one of the countries that hiked interest rates early and that as a result of that has been ahead of the curve in terms of getting inflation to be contained. Is there too much tightening? In our view, the tightening in the emerging markets, in a country like Mexico, so it is difficult to say that in general, but in many Latin American countries, including in Mexico, we do feel that the tightening has been appropriate, and, of course, the primary goal of monetary policy is to get inflation back to target. Antonio.

Mr. Garcia Pascual: Sure. On the central bank policy, so the Central Bank of Egypt has been tightening monetary policy appropriately and has delivered already since the beginning of the crisis 300 basis points. We think the Central Bank of Egypt should carry on, should continue with this task to bring inflation to target. Currently inflation is too high at almost 15 percent, and therefore widely above the target of 7 plus 2 minus, 2 percent. So therefore I think the key objective remains that of bringing inflation gradually back to target. I think that, as well as making sure that Egypt can address the high debt levels and address the issue of gross financing needs, so I think those are the key issues, and obviously our advice to the central bank is to remain focused on price stability as it has been doing over the last year.

Question: Considering the global economy is more complicated and global market is more volatile, from Europe, Asia, to Africa, everyone cares about Fed's policy and Fed has a lot of work to do right now. Do you think the Fed still can be soft landing? The second question, you just mentioned there is no worrisome currency disorder now globally, but as the market expressed, the Fed could go further, so do you think there could be, at some point, Asian currency could be a repeat of 1997 crisis? Thank you.

Mr. Adrian: Well, no crisis is ever alike, so it is difficult to think of a repeat of a crisis per se; but, of course, as we are flagging in the report, there is heightened risk of financial instability. Market dysfunction is something that we have seen very broadly across the globe in March 2020 in the so-called Dash for Cash. At the moment, we see it more narrowly in the gilt market, a certain amount of dysfunctional market developments broadly. It is not our baseline, but it is a risk, and it is a heightened risk at the moment.

Ms. Elnagar: Thank you very much. With this we end our press briefing. I would like to thank our speakers, Tobias, Fabio and Antonio. Thank you for coming. To all viewers online, I would like to let you know if you have any follow-up questions, please email us. We would like to remind you of the Fiscal Monitor press conference tomorrow at 8:30 a.m. here. Thank you.