By Leika Kihara
WASHINGTON (Reuters) -Many Asian central banks have room to ease monetary policy to cushion the blow to their economies from U.S. tariffs, a senior International Monetary Fund official said on Thursday, after the fund cut its GDP estimates for the export-driven region.
In its latest reference forecasts, the IMF said it expected Asia’s economic growth to slow to around 3.9% and 4.0% in 2025 and 2026, respectively, down from 4.6% in 2024 and well below earlier expectations.
Trade policy uncertainty has increased materially since January, which has further worsened the near-term economic outlook for the region, Krishna Srinivasan, director of the IMF’s Asia and Pacific Department, said in a press conference during the IMF and World Bank spring meetings in Washington.
Srinivasan said regional policymakers faced sharp trade-offs in dealing with the economic uncertainty, which was triggered by U.S. President Donald Trump’s April 2 announcement of hefty import tariffs on most countries.
But the IMF official noted that low price pressures provided Asian economies with some room for maneuver on interest rates.
“In a region where inflation is mostly at or below target, there is scope for monetary policy easing to cushion the external shocks in many countries,” Srinivasan said.
Asian countries were hit with some of the highest U.S. tariffs, including Cambodia at 49%, Vietnam at 46% and Thailand at 37%.
While Trump later paused the tariffs, he raised duties on China, the world’s second-largest economy even further. Beijing has imposed its own tariffs on the U.S. in response.
Srinivasan said Asia was particularly vulnerable to trade policy shocks because many of its economies were open to trade and a key link in the global supply chain.
“The combination of greater exposure to the U.S. market and significant global policy uncertainty presents a vulnerability for the region,” he said.
Aside from the hit to trade from tariffs, Asia faces the risk of heightened uncertainty feeding into market volatility, which in turn leads to tightening financial conditions, Srinivasan said.
“That could be a big downside risk for Asia going forward,” Srinivasan said. “So even though we have revised our forecast down, the downside risks are still pretty significant for the region.”
As demand in big markets like China and the U.S. slows, the IMF sees greater potential for intra-regional trade to cushion the blow, he said.
Asian economies, including China, must also prop up domestic demand by promoting consumption and investment, Srinivasan added.
While exchange rate flexibility would be a key buffer against shocks, he said currency intervention may come into play in case of heightened financial market volatility.
(Reporting by Leika Kihara; Editing by Kate Mayberry and Paul Simao)
