IMF urges Asia to keep monetary policy tighter for longer

By Leika Kihara

WASHINGTON (Reuters) -Monetary policy in Asia may need to stay tighter for longer given still substantial inflation risks, Krishna Srinivasan, the International Monetary Funds Director of the Asia and Pacific Department, said on Thursday.

“Core inflation remains sticky and has become a more important driver of headline inflation recently, which may lead to more persistent inflation and wage pressure,” Srinivasan told a news conference.

“Output gaps for Asian economies are either closing or already closed, and currency depreciation last year is still passing through to domestic prices. These factors suggest that the battle to contain inflation is not yet over,” he said.

The recent global banking stress has had a limited impact on Asian markets so far, with direct exposures of Asian banks and investors to Silicon Valley Bank minimal, Srinivasan said.

“Unless strains increase and raise broad-based stability concerns, central banks should separate monetary policy objectives from financial stability goals,” he said.

The IMF expects the Asia-Pacific region‘s economy to increase 4.6% this year, up 0.3 points from its October forecast, largely reflecting the impact of China’s reopening.

“China‘s reopened economy is rebounding strongly, and this will generate positive spillovers to its trading partners, providing fresh momentum for Asia’s growth,” he said.

(Reporting by Leika Kihara; Editing by Chizu Nomiyama)