The International Monetary Fund (IMF) has said its new research on the relationship between inflation and bank profitability points out that most banks are largely insulated from shifts in inflation-the exposure of income and expenses tend to offset each other.
Yet, it said, some have significant inflation exposures, which may lead to financial instability if concentrated losses lead to wider panics in the banking sector.
The Fund said that as several major central banks are reassessing their monetary policy frameworks in the aftermath of the post-pandemic inflation surge, a deeper understanding of the links between inflation and bank profitability can help design better monetary policy frameworks. "Our findings imply that central banks may need to consider financial stability when setting their policy stance to combat inflation," the fund said.
Our new staff research shows banks in emerging and developing economies are more exposed to inflation directly.
