NEW YORK: Financial markets are complacent about the risks of sharply higher interest rates that could be triggered by better than expected growth in the global economy this year, the World Bank has warned.
The Washington-based organisation said that much of the rich west was running at full capacity as a result of a broad-based upswing in activity, but were now vulnerable to a period of rising inflation that would prompt action from central banks.
Launching the Bank’s global economic prospects, the lead author Franziska Ohnsorge said: “There could be faster than expected inflation that would mean faster than expected interest rate hikes.”
Ohnsorge added that stock markets were at levels similar to those seen before the Wall Street Crash of 1929, while bond markets were assuming that low inflation would keep official borrowing costs down.
“Financial markets are vulnerable to unforeseen negative news. They appear to be complacent,” she said, while announcing that the Bank has revised up its 2018 forecast for the global economy following a better than expected performance in the US, China, the eurozone and Japan in 2017.