Washington: The IMF Wednesday called for an urgent policy upgrade to ensure global financial stability and better growth prospects, saying downside risks still prevail.


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"Global financial stability is not yet assured and downside risks prevail. The recommendation is for an urgent upgrade in policies, so as to avoid downside risks and to achieve our upside scenario of 'successful normalisation' of monetary and financial conditions," IMF Financial Counsellor Jose Vinals said.


"A collective effort to deliver a policy upgrade is needed urgently to face up to rising challenges in an uncertain world, to ensure financial stability and better growth prospects. Three percent of global output is at stake," Vinals said at the release of the Global Financial Stability Report.


Monetary policies in key advanced economies must remain accommodative and responsive. Both the euro area and Japan will need to continue to counter downward price pressures, he said.


Amid more uncertainty in the global economy, the US should wait to raise policy rates until there are further signs of inflation rising steadily, with continued strength in the labour market.


"The pace of subsequent policy rate increases should be gradual and well communicated," he said.


Noting that Euro area policymakers cannot rely on the European Central Bank (ECB) alone, but must strive to complete the banking union to move financial stability onto firmer ground, he said.


Further strengthening of euro area banks by comprehensively tackling nonperforming loans and the corporate debt overhang will enhance the effectiveness of monetary policy, bolster market confidence, and improve the outlook.


Resolving nonperforming loans in euro area banks could deliver about 3 percent of loans in new lending capacity.


This amounts to around 600 billion euros, he said.


Stating that rebalancing and deleveraging in China will require great care, he noted the Chinese authorities face unprecedented policy challenges in making the transition to a new growth model and a more market-based financial system.


Deleveraging the corporate sector and enhancing market discipline will inevitability entail some corporate defaults, exits of nonviable firms, as well as write-offs on nonperforming loans, thus requiring a further strengthening of banks.


Yet, moving decisively will ultimately prove less costly than trying to grow out of the problem, he asserted.


Of the view that building resilience and maintaining confidence in emerging markets will be crucial, he said emerging markets need to get ahead of the credit cycle.


With slower growth and rising corporate leverage, immediate prudential attention is needed to ensure the resilience of both corporates and banks, he added.