The global financial market crisis and a tightening of the credit market that
followed the US sub-prime mortgage market melt-down will have a "far-reaching"
impact on the world economy, the International Monetary Fund (IMF) has said.
are recognising the extent to which credit discipline has deteriorated in recent
years - most notably in the US non-prime mortgage and leveraged loan markets,
as also in other related credit markets," the IMF said in its latest `Global
Financial Stability Report''.
risks have increased significantly and even if those risks fail to materialise,
the implications of this period of turbulence will be significant and far-reaching,"
rapid deterioration in global credit conditions as risk was repriced led to "extraordinary"
liquidity injections by a number of central banks to ease market operations, the
potential consequences of this episode should not be underestimated and the adjustment
process is likely to be protracted," the report said.
downturn in the US housing sector began to be felt in the sub-prime mortgage sector
at a time when the world economy was experiencing a period of solid growth, especially
in emerging markets, the report noted.
this month, the IMF had warned of a scaling back of its growth forecasts for the
US and the eurozone, in October, amid the financial turbulence that erupted in
July report, the IMF had raised its projections for global growth to an annual
5.2 per cent in 2007 and 2008, compared with the earlier estimate of 4.9 per cent.
rapid transmission of disturbances in one part of the financial system to other
parts, sometimes through opaque and intertwined channels, has surprised both market
participants and the official sector," the IMF said.
US Federal Reserve, the European Central Bank and other central banks pumped billions
of dollars into markets to ease the credit crunch.
week the Fed cut its federal funds rate by a hefty half point to 4.75 per cent,
saying it was acting to forestall risks of a recession in the US economy.