Bigger than expected rises in long-term interest rates, or a sharp fall in the dollar, pose risks to a financial system that is at its most resilient in a long time, the International Monetary Fund said on Tuesday.
In its global financial stability report, the IMF urged central banks to continue gradually raising interest rates toward a neutral level as a policy measure to help mitigate potential risks from excess liquidity.
"The key risk is that long-term market rates and credit spreads may rise beyond current expectations", said Gerd Haeusler, director of international capital markets at the IMF, calling the state of financial stability "as good as it gets".
"While financial markets have largely priced in a moderate and gradual monetary tightening they might be less prepared if market rates -- especially long-term rates -- were to go up more abruptly," the IMF report said.
The U.S. Federal Reserve has so far lifted base rates gradually to tamp down future inflation, although most analysts agree they still have a way to climb before they reach a level where they neither stimulate nor restrict the economy.
In the meantime, sustained rises in commodity and oil prices -- U.S. crude oil futures hit a record high above $58 a barrel on Monday -- remain a risk to financial stability.
But IMF deputy director for international capital markets Hung Tran said that the impact from high oil prices has been "quite limited".