IMF urges Asian Central banks To Regulate Monetary Policies For Longer Duration

In the words of senior International Monetary Fund (IMF) official Krishna Srinivasan, Asian central banks may need to keep monetary policy "tighter for longer" to combat still significant inflation risks.

Some regional central banks, such as Australia's, have begun to pause interest rate hikes as their economies and job growth have slowed as a result of global headwinds and previous monetary tightening.

"Core inflation remains sticky and has recently become a more important driver of headline inflation, which may lead to more persistent inflation and wage pressure," said Srinivasan, the IMF's Asia and Pacific Department director.

"Asian economies' output gaps are either closing or have already closed, and currency depreciation last year is still affecting domestic prices." "These factors suggest that the battle to keep inflation under control is far from over," he said.

While the global outlook remains bleak, Srinivasan said at a news conference on Thursday that China's reopening will support Asia's economy by increasing trade and consumption.

The IMF projects 4.6 percent growth in the Asia-Pacific region's economy this year, up 0.3 percentage point from its October forecast and faster than 3.8 percent growth in 2022.

According to the most recent forecast, the region will contribute more than 70% of global growth this year, according to Srinivasan.

The IMF predicts that China's economy will grow by 5.2% in 2023, up from 3.0% the previous year.

"China's reopened economy is rebounding strongly, and this will generate positive spillovers to its trading partners, providing fresh momentum for Asia's growth," he said.

The problems in the banking sectors of the United States and Europe have increased uncertainty about the global economy, prompting the IMF to warn that lurking financial system vulnerabilities could erupt into a new crisis and slam global growth this year.

According to Srinivasan, the impact of recent global banking stress on Asia has been limited thus far, with direct exposures of Asian banks and investors to Silicon Valley Bank being minimal.

"Unless strains increase and raise broad-based stability concerns, central banks should separate monetary policy objectives from financial stability goals," he said.