The global economy is at risk of being caught in a "perfect storm," which "might be forming" as a result of massive capital flows to some emerging market economies and some strong performing advanced economies, Banco de México Governor Agustin Carstens said Tuesday.
This capital flows could lead to bubbles, characterized by asset mispricing, he said during a lecture at the Monetary Authority of Singapore. "Concern of asset price bubbles fed by credit booms are starting to appear in some economies," the policymaker said.
The world economy could also face a reversal in flows as the major advanced economies start exiting their accommodative monetary policy stance. According to Carstens, this posed a major financial stability challenge for many capital recipient countries.
He urged nations to improve their early warning systems, broaden the practice of stress testing and dwell further in multilateral surveillance and the identification of spillover effects of major economies´ policy decisions.
Carstens reportedly said at the lecture that Japan was "actively pursuing a depreciating real exchange rate policy." Over the weekend, Japan's Finance Minister Taro Aso had remarked that his country's recent policy actions are aimed at ending deflation and the yen depreciation is just the result of these measures.
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