According to a staff analysis by the IMF, exchange rates and financial conditions in Asian are significantly impacted by US interest rates. This was revealed on Thursday by Krishna Srinivasan, the director of the lender’s Asia and Pacific section.
“At a briefing on the outlook for the region, he stated that expectations about Fed easing have fluctuated in recent months, driven by factors that are unrelated to Asian price stability needs.
We advise Asian central banks to concentrate on domestic inflation rather than unduly basing their policy choices on what the Federal Reserve is likely to do next, he said. Central banks could jeopardize price stability in their nations if they follow the Fed too closely.”
The comments highlight the predicament faced by certain Asian central banks as their policy path becomes more complex due to recent currency market movements caused by the Fed.
At a separate IMF seminar on Wednesday, Bank of Korea Governor Rhee Chang-yong stated that the Fed’s diminishing likelihood of dropping rates has created challenges for the won and complicated his bank’s judgment regarding when to begin reducing borrowing costs.
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