Bank of Mexico head warns of 'perfect storm' for global economy
2013-02-05 16:53:49
A "perfect storm" could be brewing in the global economy, according to Bank of Mexico Governor Agustin Carstens who was speaking at the Monetary Authority of Singapore lecture on Tuesday.
Mr Carstens warned that massive capital flows to emerging markets and some strong performing advanced economies could lead to asset price bubbles.
He cautioned against financial markets being overly optimistic as this could cause mis-pricing in some asset classes.
He feared these countries could later face a reversal in capital flows as the major advanced economies start exiting their accommodative monetary policy stance.
Such conditions could create major financial stability risks to such capital recipient countries, he added.
Mr Carstens urge these countries to adopt "thoughtful macro-prudential policies".
He also warned emerging economies of the risks of letting their domestic currencies appreciate as this could hurt their growth especially when some advanced economies actively pursue a depreciating real exchange rate policy.