ABSTRACT

Central banks have undertaken one of the most significant and synchronized global monetary policy tightening in their recent history. Tightening monetary policy primarily meant raising interest rates, reducing the money supply, and other measures to control inflation and stabilize the economy. While the downward trend in inflation is positive, lower inflation does not mean low inflation. In most countries, inflation remains above central bank targets but is expected to continue to decline. Financial forecasters believe that the central bank’s inflation targets will be reached by mid-2025 since monetary policy works with lags. However, the current state of monetary and financial stability is shaped by a complex interplay of factors, including high inflation, geopolitical risks, banking sector vulnerabilities, debt sustainability, and climate-related risks as well as the challenges posed by tighter monetary and financial conditions. Examining challenges to global monetary and financial stability requires a systematic and multidisciplinary approach based on economic, political and international relations. In this paper, the research strategy encompasses a comprehensive literature review to understand the theoretical underpinnings and historical context of global financial stability, monitoring global economic trends, policy development and implementation, investigating geopolitical risks as well as assessment of financial risks from climate change. The research aims to understand the complexity and dynamics of the challenges facing global monetary and financial stability and contribute to the formulation of effective strategies to mitigate these risks.