IMF sees interest rate hikes in some Asian economies as the right step to lower price inflation

To raise interest rates or not? This is the question facing many central banks in Asia. There is no doubt that some Asian countries are struggling with high price inflation, and raising interest rates would be the logical step to reduce price pressures. However, raising interest rates does not mean that price inflation will slow down, as can be seen in the US. The consumer price index in the U.S. is at a 40-year high despite several rate hikes by the Federal Reserve.

Interest rate hikes, however, can lead to a slowdown in the economy, which could potentially weaken demand-side price pressures if consumers spend less.

Now, the International Monetary Fund (IMF) believes that some Asian countries should raise interest rates as soon as possible, as food and energy prices have skyrocketed globally.

“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,” adding, “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,”

wrote Krishna Srinivasan, director of the IMF’s Asia and Pacific Department, on Thursday.

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