IMF says Asia to outpace the world

The International Monetary Fund (IMF) has announced that Asia's central banks should prepare to raise interest rates as inflation expectations decline, according to a briefing held in Bangkok on Thursday. Krishna Srinivasan, Director of the IMF's Asia and Pacific Department, stated that while near-term inflation expectations have risen due to the oil shock, long-term expectations remain stable.

Srinivasan emphasized that central banks must maintain focus on price stability and communicate clearly, tightening policies if necessary. The IMF's Regional Economic Outlook for Asia and Pacific highlights three forces shaping the region: the oil and gas energy shock, the AI-driven technology boom, and the trade shock from 2025 tariff hikes.

Exchange rates and capital flows have become more volatile due to the energy shock, with several emerging economies experiencing pressure on their currencies. Foreign investment inflows have remained robust, but some portfolio outflows have occurred, particularly affecting South Korean technology stocks. The IMF's World Economic Outlook suggests that monetary policy should be tightened where appropriate, particularly in countries reliant on the technology supply chain, where inflation remains above target.

The report also warns that volatile currencies, rising yields, and stress in bond markets could negatively impact Asian economies. Despite the challenges, Asia's growth is projected to outpace the world, with the region expected to contribute over two-thirds of global growth. India's growth is projected to reach 7.0% in both 2026 and 2027, higher than the IMF's April forecast.

However, the report cautions that resilience in the region is not unlimited, warning of risks such as prolonged tension in the Middle East, a reassessment of AI-related profits, and a potential El Nino event.