KUALA LUMPUR (April 30): Asian central bankers should tailor their policies based on domestic fundamentals instead of being too fixated on the US Federal Reserve’s interest rate trajectory, said IMF Asia-Pacific director Krishna Srinivasan.

“Asian central banks should continue to focus firmly on domestic price stability and avoid making policy decisions overly dependent on anticipated interest rate moves by the Federal Reserve,” he said at a virtual press conference on Tuesday upon the release of the IMF’s Regional Economic Outlook report for the Asia-Pacific region.

“It is important to allow the exchange rate to be the buffer against shock so that you can meet your price stability objectives, your external objectives and so on.

“If the exchange rate movements are leading to, say, higher pass-through [inflation], then there might be a reason to tighten interest rates. But otherwise, just look to see what's happening to domestic inflation and tailor your policies accordingly,” he added.

Krishna said Asian countries are better placed than before to cope with recent exchange rate movements, as there are fewer financial frictions and these countries are equipped with better macro-fundamentals and institutional frameworks.

“[These] should continue to allow the exchange rate to act as a buffer against shocks,” he said.

Nonetheless, Krishna said advancing fiscal consolidation is an urgent priority both to lessen the burden of higher debt levels and to rebuild the fiscal space needed to address medium-term structural challenges.

Therefore, he said Asian central bankers should continue to vigilantly monitor the buildup of risks associated with the pass-through of tighter monetary policies to corporate and household balance sheets.

The report maintained IMF’s previous forecast for the Malaysian economy to grow 4.4% this year, up from 3.7% in 2023.

According to IMF’s data, Malaysia's gross domestic product (GDP) is estimated to reach US$445.52 billion (RM2.1 trillion) in 2024, the sixth largest amongst Asean peers, having been surpassed by Vietnam and the Philippines in recent years.

Indonesia remains the largest economy in Asean this year, with an estimated GDP of US$1.48 trillion, followed by Thailand’s US$548.89 billion, Singapore’s US$525.23 billion, the Philippines’ US$471.52 billion and Vietnam's US$465.81 billion.

Countries ranking below Malaysia include Myanmar’s war-torn economy, estimated to be worth some US$68.01 billion in 2024, followed by Cambodia (US$45.15 billion), Brunei (US$15.51 billion) and Laos (US$15.19 billion), IMF data showed.

IMF also sees the Philippines’ economy growing by 6.2% in 2024, with Vietnam’s growing by 5.8%, both faster than Malaysia’s 4.4%.

The briefing on Tuesday did not take any questions specifically on Malaysia, but instead focused on some of the larger economies in the Asia-Pacific region, China linkages with its Asian counterparts, and the population dividends from Indonesia, the Philippines and Vietnam.