Europe’s central banks should be wary of potential dangers ranging from more financial stress to a divergence in bond yields as they stay the course with further interest-rate hikes, according to the International Monetary Fund.
Inflation risks put the onus on officials to keep tightening, the Washington-based lender said in a report on Friday. Even so, they’ll need to stay nimble in case more tensions emerge similar to the recent turmoil originating in the US that ended up crippling Credit Suisse Group.
“While comfortable average capital and liquidity buffers among banks in the euro area and the UK provide a cushion, the recent banking-sector problems illustrate how liquidity strains and financial stress can surface abruptly,” the IMF said. “Another stress episode could erode buffers, especially among banks with weaker fundamentals, and sharply tighten credit and broader financial conditions.”
The assessment listed a full spectrum of risks faced by the region’s
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