WASHINGTON: Near-term global financial risks are contained, but monetary policy easing could fuel asset price bubbles and markets might be underestimating risks posed by military conflicts and impending elections, the International Monetary Fund said on Tuesday.

In its semi-annual Global Financial Stability Report, the IMF warned that a “widening disconnect” between escalated geopolitical uncertainty and low market volatility increases the chance of a market shock similar to the gyrations seen in August when a Bank of Japan interest rate hike sparked massive de-leveraging.

Buoyant credit and equity markets also seem undeterred by a slowdown in earnings growth and the continued deterioration in more fragile segments of the corporate and commercial real estate sectors, the Washington-based multilateral lender said.

It also flagged that while monetary easing by most other major central banks was creating “accommodative” financial conditions, interest rate cuts could stoke lofty asset valuations, a global rise in private and government debt, and non-bank leverage.

“These mounting vulnerabilities could amplify adverse shocks, which have become more probable due to elevated economic and geopolitical uncertainty amid ongoing military conflicts and the uncertain future policies of newly elected governments,” it wrote.