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The IMF’s David Lipton has told CNBC that the current swing to a dovish tone from global central banks should not lead investors to believe that market volatility will just disappear.
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Markets sold off heavily towards the end of 2018, spooked by the U.S.-Sino trade spat and the suggestion that the Federal Reserve was set to press ahead with interest rate rises.
Sluggish data and tepid inflation in 2019 has led central banks around the world to reevaluate their interest rate strategies and stimulus policies. That change in rhetoric has led to a bump up for stocks as investors predict a longer period of cheap cash.
“It is correct for capital markets to take their cue from central banks but I think they shouldn’t assume that volatility has gone forever just because central banks are in an accommodative posture,” said Lipton at the Spring Meetings of the International Monetary Fund and the World Bank Group in Washington D.C. on Thursday.
The former managing director at Citi told CNBC’s Joumanna Bercetche that given the finely balanced nature of global growth, the current main message from from the IMF to policymakers was “do no harm, do some good.”
Lipton said that message applied across the world, whether it be avoiding trade tensions, making sure that Brexit discussions worked well and that Italy addressed its economic struggles.
Meanwhile, the general manager of the Bank for International Settlements (BIS) said Thursday that asset prices are fairly valued right now and central banks won’t create financial instability by continuing to adopt an easy money, low-rate environment.
Also speaking in Washington Thursday, Augustin Carstens said that the correction in the markets towards the end of 2018 had taken assets back to a fair value.
“Certainly there are assets that are not cheap but I would not say that there is asset mis-pricing,” Carstens told CNBC’s Joumanna Bercetche.
“I think it is appropriate for central banks to take advantage of this space to consolidate growth without compromising financial stability,” he added.
The BIS is known as the “central bank’s bank” as the likes of the Federal Reserve and Bank of England hold accounts there.