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 for the IMF’s Asia and Pacific Department, told a press conference.
Srinavasan 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 across the world.
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 globally including Cambodia at 49%, Vietnam at 46% and Thailand at 37%.
While Trump later paused the tariffs’ introduction, he raised duties on China, the world’s second largest economy even further. Beijing has imposed its own tariffs on the United States 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.
“Risks are tilted to the downside.”
Srinavasan said financial market volatility causing further disruption to capital flows and investment posed an additional risk.
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)
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