Some Asia economies may need rapid rate hikes to cool inflation: IMF

Most emerging Asian economies had experienced capital outflows comparable to those in 2013, when global bond yields spiked on hints by the US Federal Reserve that it might taper bond buying sooner than expected, Srinivasan said.

Outflows had been especially large for India, which had seen US$23 billion move out since Russia’s invasion of Ukraine, he wrote. Outflows had also been seen in such economies as South Korea and Taiwan.

Tightening monetary conditions would strain already worsening finances in some Asian economies, and limit the scope for policymakers to cushion the economic blow from the pandemic with fiscal spending.

Asia’s share of total global debt had increased from 25 per cent before the global financial crisis to 38 per cent post-COVID-19, raising the region’s susceptibility to changes in global financial conditions, Srinivasan said.

Some Asian countries might need to tap measures such as foreign exchange interventions and capital controls to combat any sharp outflow of funds, he added.