The IMF points out two main factors hindering economic growth in Asia: rising interest rates and a strong US dollar.

A senior official of the International Monetary Fund (IMF) recently stated in an interview that if the US dollar unexpectedly strengthens, combined with a significant rise in long-term interest rates from low levels, leading to a tightening of global financial conditions, the resilience shown by Asian countries in dealing with US tariffs may face severe challenges. The IMF official stated that a sustained strengthening of the US dollar or a rise in long-term US Treasury yields could increase the overall debt costs in Asian markets. In financial markets, the yield curve of 10-year and longer US Treasury bonds is typically an important benchmark for global long-term interest rates. "If the Federal Reserve continues its rate-cutting process and the US dollar subsequently weakens, major central banks in Asian markets may significantly relax monetary policy to support domestic economic growth without overly worrying about capital outflow risks," said Krishna Srinivasan, head of the IMF's Asia-Pacific region, in an interview. According to the IMF, low interest rates and a weak US dollar trend have helped Asian markets withstand the impact of the Trump administration's tariffs so far this year. However, a strengthening US dollar or a significant rise in long-term US Treasury yields could increase debt costs in Asia. Low interest rates and a decline in long-term US Treasury yields will also significantly help governments and businesses in Asian countries to borrow at lower costs and withstand the economic impact of continued increases in US tariffs, Srinivasan said. But Srinivasan warned that these very favorable financial conditions for Asian markets could change at any time. "If interest rates start rising, especially long-term US Treasury bonds and long-term domestic government bond yields, it will have a significant impact on Asian markets because debt servicing costs in Asia have always been quite high as a percentage of income. This is a serious issue," Srinivasan said in an interview in Washington. "A significant appreciation of the US dollar would also affect Asia," he said. "Accommodative financial conditions have consistently supported economic growth in Asia, but they could change at any time. This is a significant risk for the overall Asian economy." The IMF projects that the entire Asian economy will grow by 4.5% in 2025, a slight slowdown from last year's 4.6%, but an upward revision of 0.6 percentage points compared to the IMF's April forecast report, partly due to record strong export growth driven by "frontloading shipments" before higher US tariffs took effect. However, the organization warns that the risks of Asian economic growth are tilted downwards and expects growth to further slow to 4.1% in 2026. The IMF's latest research report states that many Asian countries may need to further loosen monetary policy to bring inflation back within target range and ensure that inflation expectations remain anchored. Despite a rebound in demand after the pandemic and the long-term war between Russia and Ukraine pushing up commodity prices, inflation in Asia remains relatively moderate compared to other regions in the world. "This indicates that major central banks in Asia are able to anchor inflation expectations and significantly bring down inflation, because the public trusts their independence from government intervention measures," Srinivasan said in the interview. "The independence of central banks in monetary policy is very important so that they can achieve their goals, especially price stability," he said. "But when it comes to the independence of monetary policy, central banks also have a responsibility to the public. Equally important is not to burden them with too many missions and debts," Srinivasan said.