Asian central banks shouldn't rely on US Fed interest rate moves: IMF
Business
Notes adverse effects of Chinese ‘excess capacity’ both domestically and regionally
- Warns some industrial policies can lead to unintended consequences like trade distortions
SINGAPORE (Web Desk) – Asian central banks should continue to focus firmly on domestic price stability and avoid making policy decisions overly dependent on anticipated interest rate moves by the Federal Reserve, said Krishna Srinivasan who is the International Monetary Fund (IMF) Director for Asia Pacific.
It is relatively lower inflation in Asia which was cited as a reason, with the senior IMF official saying, “Asian countries are better placed to cope with exchange rate movements today owing to fewer financial frictions and better macro fundamentals and institutional frameworks, and should continue to allow exchange rates to act as a buffer against shocks."
The comments came in his opening remarks as Srinivasan spoke at the IMF’s Regional Economic Outlook for Asia and Pacific.
Earlier on Monday, the State Bank of Pakistan’s Monetary Policy Committee maintained the interest rates at a record high level of 22 per cent, which were last raised in June last year.
Amid a marked decrease in inflation witnessed during the first quarter of 2023-24, the committee argued that the policy aligned with other leading central banks, particularly in advanced economies, who had adopted a “cautious policy stance after noticing some slowdown in the pace of disinflation in recent months”.
Last month, Finance Minister Muhammad Aurangzeb had noted that the sustained high US interest rates were not a “big concern”.
"The Fed needs to make the decision based on what they see in their inflation trajectory here (in the US) – but overall around the world, most of the central banks are looking to start cutting rates," he told Reuters in an interview.
"Maybe some short-term pressure - but do I see it as a big concern in the medium term? No."
About China, Srinivasan said China was a source of both upside and downside risks, adding that policies aimed at addressing stresses in the property sector and to boost domestic demand would both help China and the region.
However, he warned that sectoral policies contributing to excess capacity would hurt China and the region. “Geoeconomic fragmentation remains a significant risk.”
At the same time, Srinivasan noted that industrial policies, which have been on the rise in Asia and the Pacific region and globally, can lead to unintended consequences, such as trade distortions which risk reinforcing fragmentation.
