Many Asian central banks must raise interest rates quickly because inflationary pressures are increasing as a result of a global increase in food and fuel prices induced by the Ukraine war, said Krishna Srinivasan, director of the International Monetary Fund (IMF) Asia and Pacific Department.

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“Asia’s growing inflation pressures remain more moderate compared with other regions, but price increases in many countries have been moving above central bank targets,” he added.

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“Several economies will need to raise rates rapidly as inflation is broadening to core prices, which exclude the more volatile food and energy categories, to prevent an upward spiral of inflation expectations and wages that would later require larger hikes to address if left unchecked,” he said.

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The majority of developing Asian economies had seen capital outflows equivalent to those experienced in 2013, when global bond yields jumped in response to indications from the US Federal Reserve that it could end bond purchasing sooner than expected, according to Srinivasan.

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He noted that outflows had been notably high for India, which had witnessed $23 billion leaving since Russia’s invasion of Ukraine. Economies like South Korea and Taiwan had also seen outflows.

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In several Asian countries, where the financial situation is already fragile, tightening monetary policies would make it harder to spend financially to offset the pandemic’s economic impact.

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According to Srinivasan, Asia’s proportion of total global debt climbed from 25% prior to the global financial crisis to 38% post-COVID, making the region more vulnerable to changes in global financial circumstances.

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To combat any significant outflow of funds, certain Asian governments may need to use measures such as foreign exchange interventions and capital controls, he added.