G-20 Fin Ministers Meet in Cairns

US Easement may Stimulate Volatility and Instability in Rest of World, Growth Confined to US and UK only

Group of 20 Finance Ministers and Central Bankers said low interest rates could lead to a potential increase in financial-market risk, as major economies rely on monetary stimulus to bolster uneven growth.

“There is potential for a build-up of excessive risk in financial markets with low interest rates and low asset price volatility,” the G-20 officials said on 20 Sept. in a communique released in Cairns, Australia where the Ministers are meeting.

U.S. and U.K. economies have improved and their stock markets have risen, but Europe risks slipping into deflation. Concerns are mounting that China’s 7.5 percent economic growth target for 2014 is becoming harder to attain.

Monetary stimulus by the Federal Reserve, European Central Bank and Bank of Japan has produced only temporary relief. Fed decisions on withdrawing stimulus has unleashed new forces of volatility.

Canada’s Finance Minister Joe Oliver told reporters in Cairns. “If there is a reappraisal it could all of a sudden shoot up in volatility and result in losses which could be disruptive.”

Shadow Banking and Excess Valuation

Risks from shadow banking are growing fast, according to International Monetary Fund Managing Director Christine Lagarde. While Lagarde said central banks have tools to react to potential excess valuations in various parts of the market, Bundesbank President Jens Weidmann said the environment of low interest rates can threaten financial stability.

Investors are becoming complacent about risks in financial markets, the Financial Stability Board said last week. Emerging markets were hurt last year as the prospect of a reduction in U.S. stimulus spurred outflows.