Asian central banks may continue to face interest rate hikes

Inflation, if it rebounds, will pose a threat to Asia's economic outlook.

Asian central banks may need to continue raising interest rates if core inflation has not shown signs of cooling down to target, according to the International Monetary Fund (IMF).

Accordingly, policymakers must be "highly vigilant" even though overall inflation has cooled down.

This is because core inflation – excluding temporary and strong volatility factors – remains well above target, Krishna Srinivasan, Thomas Helbling and Shanaka J. Peiris, experts at the IMF, said in the article. posted on the blog on 2/21.

Asia benefited from the strength of the local currency, the cooling of global commodity prices, and the cost of transportation.

However, the effects of the second round are quite mixed, IMF experts said. In addition, China's economic opening could add to price pressure.

“This means that central banks should exercise caution and reaffirm their commitment to maintaining price stability.

Indeed, they may need to raise rates if core inflation shows no signs of cooling down to its target level,” the IMF said.

"Given the two-way risks to inflation in Japan, a more flexible adjustment in long-term yields would help avoid abrupt changes later on," the IMF said.

The warning comes as many central banks in developed countries take a "hawkish" stance as price pressures remain high. This may force central banks to raise interest rates further.

Federal Reserve officials say larger rate hikes could be considered if inflation rises hotter than expected.

Meanwhile, earlier this month, the Bank of Australia raised interest rates to a 10-year high as core inflation increased by 6.9% in the fourth quarter of 2022, beating forecasts of 6.5%. In India, core inflation has remained hovering above 6% for 16 consecutive months, prompting calls for more monetary policy tightening.

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