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Central Banks Exit Could Increase Stress

The Bank for International Settlements released its 83rd annual report last week, stating that the increase in interest rates that will happen when central banks exit from stimulus measures will put stress on the global financial system. And the rumbling in the markets will start as soon as central banks even hint about policy changes: “…disruptive market dynamics could even materialize as soon as central banks signal that an exit is imminent”.

The report was sent to print on June 14th – several days before the Federal Reserve hinted that they could taper their bond buying program later this year, sending the market spiraling.

And this isn’t the first time the BIS has made a statement at an opportune time. In 2006, a year before signs of the financial crisis emerged, the bank wrote that “financial market turmoil or a long period of relatively slower global growth” was a risk. And shortly before Lehman Brothers collapsed, the bank wrote that the world would suffer a “more protracted global downturn than the consensus view seems to expect”.

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