WASHINGTON (Reuters) – The global economic recovery has strengthened financial stability but easy monetary and financial conditions against a backdrop of sluggish inflation is elevating medium-term risks, the International Monetary Fund said on Wednesday.
The IMF, whose autumn meetings with the World Bank get under way in Washington later this week, also noted risks are rotating from banks, which have fortified their balance sheets, to financial markets as credit spreads compress, volatility declines and asset prices rise.
"While increased risk appetite and search for yield are a welcome and intended consequence of unconventional monetary policy measures…there are risks if these trends extend too far,” the IMF said in its biannual global financial stability update.
 A prolonged search for yield has raised the sensitivity of the financial system to market and liquidity risks, the Fund said, keeping those risks elevated.
The IMF urged national regulators to consider carefully any proposals that would substantially ease capital, liquidity or prudential standards in "light of their potential to damage the agenda of global regulatory harmonization.”
 The improvement in near-term financial stability has been underpinned by a broad-based global economic upswing.
On Tuesday, the IMF upgraded its global economic growth forecast for 2017 by 0.1 percentage point to 3.6 percent, and to 3.7 percent for 2018, from its April and July outlook, driven by a pickup in trade, investment, and consumer confidence. But global central banks have found themselves at different stages in removing monetary policy accommodation, which has been complicated by overall sluggish inflation.