Asian Central Banks May Lower Rates to Counter U.S. Tariffs, IMF Says

The International Monetary Fund (IMF) has indicated that several central banks in Asia have the capacity to lower interest rates. This move is aimed at mitigating the economic impact of U.S. tariffs, which have been a significant concern for the region. The IMF's Asia and Pacific Department Director, Krishna Srinivasan, highlighted that many Asian central banks have room to ease monetary policy to cushion the blow from U.S. tariffs. This assessment comes after the IMF revised its growth projections for export-driven Asian economies, reflecting the broader economic challenges posed by the tariffs.

The IMF's latest reference forecast predicts that economic growth in Asia will slow to approximately 3.9% in 2025 and 4.0% in 2026, down from 4.6% in 2024. These figures are notably lower than previous expectations, underscoring the significant impact of the tariffs on the region's economic outlook. The IMF's warning about the potential for a "significant slowdown" in global economic growth due to U.S. tariff policies further emphasizes the need for monetary policy adjustments in Asia.

Srinivasan noted that since January, trade policy uncertainty has significantly increased, further worsening the region's near-term economic outlook. Policy makers in the region face difficult trade-offs in responding to the economic uncertainty triggered by U.S. President Donald Trump's announcement on April 2 of high import tariffs on most countries. However, the IMF official pointed out that lower price pressures provide some room for maneuver in interest rates for Asian economies.

Srinivasan stated, "In this region where inflation is mostly at or below target levels, many countries have the space to ease monetary policy to cushion external shocks." Asian nations have been impacted by some of the highest U.S. tariffs globally, with Cambodia facing 49%, Vietnam 46%, and Thailand 37%. Srinivasan emphasized that Asia is particularly vulnerable to trade policy shocks due to the region's open economies and critical roles in global supply chains. "Higher exposure to the U.S. market, combined with significant global policy uncertainty, makes the region vulnerable," he said.

Srinivasan also warned that financial market volatility could disrupt capital flows and investment, adding to the risks. While exchange rate flexibility will be a key buffer against shocks, currency intervention measures may be necessary in the face of heightened financial market volatility. The IMF's call for Asian central banks to consider lowering interest rates is a strategic response to the economic headwinds created by the tariffs. By easing monetary policy, central banks can stimulate economic activity and support businesses and consumers affected by the tariffs. This approach is particularly relevant for export-driven economies in Asia, which are heavily reliant on international trade for growth.

The IMF's recommendations come at a time when the global economic landscape is fraught with uncertainty. The ongoing trade tensions between the U.S. and other major economies have created a volatile environment that requires careful navigation. The IMF's advice to Asian central banks to consider lowering interest rates is a proactive measure to mitigate the potential economic fallout from these tensions. In summary, the IMF's call for Asian central banks to lower interest rates is a strategic response to the economic challenges posed by U.S. tariffs. By easing monetary policy, central banks can support economic growth and stability in the region, despite the uncertain global economic environment.