Tightening conditions and heightened uncertainty could hit emerging markets like India, warns global lender.
The International Monetary Fund (IMF) has flagged a significant rise in global financial stability risks, even as markets appear calm and central banks begin to ease interest rates. The warning comes alongside a cut in the global growth forecast to 2.8% for 2025, with the IMF citing rising market volatility, policy uncertainty, and trade tensions.
In its latest Global Financial Stability Report (GFSR), released during the Spring Meetings in Washington, the IMF cautioned that tightening global financial conditions could pressure currencies, asset prices, and capital flows—particularly in emerging markets like India.
“Despite a calm surface, the undercurrents of financial instability are strengthening,” said Tobias Adrian, IMF Financial Counselor. “Recent equity sell-offs and high leverage in parts of the financial system could trigger further volatility, especially in markets with weaker institutions.”
“It is crucial that we prepare for potential challenges ahead… ensuring market functioning and supporting prudent regulation,” said Adrian.
The Fund warned that asset valuations remain stretched, and sovereign bond markets—especially in high-debt economies—may face turbulence if leveraged trades unwind abruptly.
India in the Spotlight
While India remains one of the fastest-growing major economies, the IMF’s outlook suggests that emerging markets could face elevated refinancing costs and increased investor scrutiny. India’s public debt, external borrowings, and capital inflows could come under pressure if global volatility persists.
The IMF called on emerging economies to maintain fiscal buffers, build foreign reserves, and strengthen financial market oversight. Indian regulators have already been pushing for tighter stress testing norms and greater scrutiny of non-bank financial companies (NBFCs), aligning with the IMF’s recommendations.
