The International Monetary Fund (IMF) reminds Asian central banks that they should not prioritize the actions they think the Federal Reserve will take when formulating their own policy path.
“We recommend that the Asian Central Bank pay attention to domestic inflation and prevent excessive reliance on predicting the actions of the Federal Reserve when making decisions,” Krishna Srinivasan, the fund's Asia Pacific director, said in a statement prepared for Thursday's press conference. “If central banks follow the Federal Reserve too closely, they may destabilize prices in their countries.”
Earlier on Thursday, IMF Managing Director Kristalina Georgieva stated that “everyone is focused on America,” and many officials attending the International Monetary Fund-World Bank Spring Meeting in Washington are asking “how long the Federal Reserve's high interest rates will last.”
In fact, “America's monetary policy is important to Asia,” Srinivasan said. “IMF staff analysis shows that US interest rates have a strong and direct impact on Asian financial conditions and exchange rates.”
At the same time, he said that every Asian central bank should respond to its own price dynamics according to its own circumstances.
Srinivasan said that economies with high inflation should adopt a “tighter and longer stance”, while economies that are clearly weak should adopt an easing policy.
The strong US economy and stubborn inflation have repeatedly weakened the prospects for the Federal Reserve to cut interest rates and push the dollar higher against Asian currencies. Japan and South Korea have publicly expressed serious concerns about the weakness of their domestic currencies.