Most Asian Central Banks Can Cut Rates

By Leika Kihara

WASHINGTON (Reuters) – Most Asian central banks have room to cut interest rates, according to a senior International Monetary Fund (IMF) official, as the start of the U.S. monetary easing cycle reduces fears of an unwelcome weakening of their currencies.

Krishna Srinivasan, director of the IMF's Asia and Pacific Department, noted that risks to Asia's economic outlook are tilted to the downside due to tentative signs of potential weakening in global demand.

> “No one wins from trade fragmentation. We all pay for slow global growth,” stated Srinivasan during a press briefing at the IMF and World Bank annual meetings in Washington. He emphasized that this situation particularly affects Asia, where many countries are entrenched in global supply chains.

The IMF projects Asia's economies to grow by 4.6% in 2024 and 4.4% in 2025, maintaining their status as “the world's engine of growth,” Srinivasan reported. He also mentioned that Asia has successfully reduced inflation to low and stable rates more swiftly than other regions, stating, “In emerging Asia, the disinflation process is actually complete.”

Despite some Asian central banks' hesitation to ease monetary policy prior to the Federal Reserve, Srinivasan believes that such concerns should be alleviated now that the U.S. central bank has begun cutting rates. However, the economic landscape could become more challenging for Asia due to a slowdown in U.S. growth and declining demand in China.

“Risks to the outlook are now relatively to the downside,” said Srinivasan. He pointed out that many countries worldwide continue to impose trade restrictions rapidly, which could burden the trade-dependent Asian economies.

While Asian nations have the capacity to ease monetary policy, their rising public debt limits their ability to loosen fiscal policy.

> “For most Asian countries, it's time to start budgetary consolidation in earnest,” Srinivasan concluded.