IMF says Asia can cut rates to cushion economy from tariff shock

The Asiatic central banks are typically able to lower interest rates to offset the effects of the escalating international trade war, according to the International Monetary Fund, with the territory significantly more resilient than before the Asian financial crisis.

IMF Director of the Asia and Pacific Department Krishna Srinivasan told Bloomberg Television’s Haslinda Amin on Friday that the region’s inflation rate is at line or even below the specific peaks for which monetary easing may be beneficial.

According to Srinivasan, “what we are advising countries is to let the exchange rate get the shock absorber, and allow monetary policy provide you space to change” to the tariff shock, especially if rates in the US be higher for more.”

The tariffs, which are expected to slow the global economy, are a time of concern for US President Donald Trump, with the export-driven Asian region set to be one of the hardest hit. &nbsp,

The IMF projects that Asia’s economy will grow only 3.9 % this year and 4 % in 2026 as a result of its “double whammy” of weaker external demand and higher US tariffs, according to Srinivasan.

That is the Fund’s sharpest adjustment since the pandemic, he said, and a cumulative downgrade of 0.8 percentage points from its earlier forecasts. &nbsp,

According to him, the new forecasts also face” significant downside risks” depending on the outcome of trade negotiations with the US.

On the plus side, he claimed that the region’s fundamentals are “much, much better” than they were during the 1997-1998 Asian financial crisis, when the IMF bailed out Indonesia, South Korea, and Thailand. &nbsp,

According to Srinivasan, credible policy frameworks, independent central banks, and less currency mismatch in their balance sheets are among the differences. &nbsp,

The IMF urged Asia to focus on its domestic economy to stimulate growth and implement the necessary structural reforms to encourage consumption and investment, which are still below pre-pandemic levels.

Lower borrowing costs, such as those in China and Thailand, should help boost demand and lift nations out of deflationary territory. &nbsp,

Since budget deficits remain high post-Covid, any fiscal support should be “targeted and time-bound,” Srinivasan said.