IMF Sees Strong Growth in Asia Continuing, Further Policy Tightening Needed
The REO points to the need for further tightening of monetary policy in many countries in Asia, including through greater exchange rate appreciation. A faster withdrawal of the fiscal stimulus put in place during the global financial crisis would also help guard against the risks of overheating.
The REO notes, however, that should a worsening of global economic conditions negatively affect Asia, there is room to return to a more stimulative policy stance.
Managing capital inflows into the region is a difficult challenge. These inflows present many opportunities, but they also pose potential risks to financial stability. Macro-prudential measures have appropriately been taken in many regional economies to minimize risks, but more action may be needed. These important issues were recently discussed at a high-level conference on “Macro-Prudential Policies: An Asian Perspective” hosted by the People’s Bank of China and the IMF in Shanghai.
Rebalancing Asia’s growth remains the top policy priority over the medium term. With external demand from advanced economies unlikely to return to pre-crisis levels in the foreseeable future, Asia will need stronger domestic demand in order to continue along a robust growth path.
A broad range of reforms are needed to support domestic consumption and investment, including strengthening social safety nets, ensuring access to credit, easing restrictions in service sectors, and improving infrastructure. Exchange rate appreciation is an important part of rebalancing. “It is only natural that as Asian economies grow stronger so too will their currencies,” said the IMF’s Singh. “This is very much a sign of Asia’s success.”
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