Asian countries must brace for Ukraine war-induced inflation – IMF

Asian countries must brace for Ukraine war

Fuel and food prices are rising due to the war in Ukraine. The International Monetary Fund (IMF) has said that some Asian central banks will need to raise interest rates quickly to stem inflation.

While inflation in Asia remains “moderate” compared to other regions, many countries’ economies need to act quickly to avoid seeing large increases in the coming years, Krishna Srinivasan, director of the IMF’s Asia and Pacific Department, wrote in a blog.

“At the same time, some countries, companies, and governments have taken on substantial debt during the pandemic. Its interest rate is relatively high, which will impact the budgets of those companies/governments a lot,” Srinivasan said.

Asia’s share of global debt in 2007-08 was 25 percent. Financial distress has risen to 38 percent since the coronavirus public health emergency. Srinivasan did not specify which countries’ economies would need to raise interest rates sooner.

South Korea, Singapore, New Zealand, and the Philippines have tightened monetary policy in the past month. As the essential costs of living continue to rise, central banks are forced to raise lending rates. The higher the interest rate, the lower the debt. Liquidity will be restricted. This will keep the country’s inflation under control.

Srinivasan said that while policy recommendations vary by country, measures such as foreign exchange interventions, macroprudential policies, and capital flow management are useful tools for governments to manage systemic risks.

“Countries should act quickly without delaying too much. Adjust their policy where necessary or build their external financing opportunities where appropriate,” he said.

India has spent around $23 billion since Russia’s invasion of Ukraine. This will greatly affect the Indian economy. A senior IMF official noted that most emerging Asian economies are experiencing similar capital outflows.


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