Intriguing Prospects: IMF Identifies Room for Rate Cuts in Asia Amid U.S. Policy Easing

A senior official from the International Monetary Fund (IMF) stated that most Asian central banks have the capacity to lower interest rates. This move has become more feasible with the initiation of a monetary policy easing cycle in the United States. The change in US policy has alleviated concerns about the undesirable weakening of Asian currencies.

Krishna Srinivasan, Director of the IMF's Asia and Pacific Department, highlighted the potential for these rate cuts during a press conference at the IMF and World Bank annual meetings in Washington. He noted that the risks to Asia's economic outlook are predominantly on the downside, pointing to possible signs of weakening global demand.

Srinivasan emphasized the importance of global integration for Asian economies, stating, "No one gains from the fragmentation of trade. We all pay the price of slow global growth." He particularly noted that many countries in the region are deeply connected to global supply chains.

The IMF projects that Asian economies will grow by 4.6% in 2024 and 4.4% in 2025, maintaining the region's status as the "engine of global growth." Additionally, Srinivasan mentioned that Asia managed to bring inflation down to low and stable levels more rapidly than other regions, with developing Asia having completed the disinflation process.

Despite the possibility of easing monetary policies, Srinivasan warned that the economic environment in Asia could become more challenging due to slower economic growth in the US and weakening demand in China. He also highlighted the swift imposition of global trade restrictions that could impact trade-dependent Asian economies.

Moreover, while Asian countries might potentially ease monetary policy, Srinivasan cautioned that rising public debts are limiting their ability to implement more expansionary fiscal policies. He noted, "For most Asian countries, it is time to seriously embark on budget consolidation," indicating a need for a more cautious fiscal approach amid current economic challenges.