Some Asian central banks need rapid rate hikes due to the rising inflation as a result of the global surge in food and fuel prices caused by the war in Ukraine, said a senior International Monetary Fund (IMF) official.
Krishna Srinivasan, director of the IMF’s Asia and Pacific Department, wrote in a blog, “Asia’s growing inflation pressures remain more moderate compared with other regions, but price increases in many countries have been moving above central bank targets. At the same time, further rate rises will squeeze budgets for consumers, companies and governments that took on substantial debt during the pandemic.”
Asia’s share of total global debt had increased from 25 percent before the 2007-08 global financial crisis to 38 percent after the coronavirus public health emergency, he noted.
Srinivasan did not specify which economies would have to quickly increase interest rates.
South Korea, Singapore, New Zealand, and the Philippines have all tightened monetary policy in the past month as the rising cost of living pressures push central banks to raise the cost of borrowing.
Most emerging Asian economies had experienced capital outflows comparable to those in 2013, when global bond yields spiked on hints by the US Federal Reserve that it might taper bond buying sooner than expected, Srinivasan said.
Outflows had been especially large for India, which had seen USD 23 billion move out since Russia’s invasion of Ukraine, he wrote. Outflows had also been seen in such economies as South Korea and Taiwan.
He said, “Countries should not wait until it is too late – either to adjust their policy mix where necessary or to rebuild their external financing buffers where appropriate.”
Some Asian countries might need to tap measures such as foreign exchange interventions and capital controls to combat any sharp outflow of funds, he concluded.
Tightening monetary conditions would strain already worsening finances in some Asian economies, and limit the scope for policymakers to cushion the economic blow from the pandemic with fiscal spending.
Image Credit: Twitter