Krishna Srinivasan, director of the International Monetary Fund's (IMF) Asia and Pacific Department, said that if the stronger dollar and the rebound of low interest rates lead to a tightening of the financial environment, the resilience of Asian economies in responding to US tariffs may be tested.

The appreciation of the US dollar triggered a triple crisis

Srinivasan pointed out that if the Federal Reserve continues to cut interest rates, the resulting depreciation of the US dollar will give Asian central banks more room for looser policies - they can support their local economies through monetary easing without having to worry too much about the risk of capital outflows.

He said that low interest rates and the downward trend in long-term yields have created a low-cost financing environment for Asian governments and companies, helping them to withstand the impact of US tariffs.

But Srinivasan warned that currently favorable financial conditions could reverse. In an interview in Washington last week, he admitted: "If interest rates start to rise, especially long-term rates, it will have a significant impact on Asia — the region has always had high debt-servicing costs as a share of income, which will be a serious challenge."

He stressed: "If the US dollar enters an appreciation channel, it will also affect Asia. Although financial conditions have provided strong support so far, they may change at any time. This is the biggest risk facing Asia."

Short-term rush to export cannot hide long-term concerns

The International Monetary Fund predicts that Asia's economy will grow by 4.5% in 2025, slowing from last year's 4.6% growth, but 0.6 percentage points higher than its April forecast, mainly due to strong trade performance brought about by the rush to ship exports before the United States imposed tariffs.

However, the report warned that risks are tilted to the downside and predicted that growth would slow to 4.1% in 2026. The report pointed out that most economies may need to implement additional monetary easing policies to return inflation to the target range and ensure that inflation expectations are firmly anchored.

Although the rebound in demand during the epidemic and the conflict between Russia and Ukraine pushed up raw material prices, triggering a wave of global inflation, inflation in Asia has always been milder than in other regions.

Srinivasan pointed out that this confirms that Asian central banks have successfully anchored inflation expectations and controlled price levels by virtue of their credibility without government interference.

"It is crucial that the central bank maintains its independence so that it can achieve its objectives, particularly price stability," Srinivasan said.

"But when you talk about independence, they also have to be accountable to the public at large. It's also important that they don't have multiple responsibilities," he said.

Growth engines face protectionist headwinds

According to the International Monetary Fund's assessment, the Asia-Pacific region remains the fastest growing region in the world, but escalating tariff barriers and rising protectionism may suppress its export demand and ultimately drag down economic vitality.

The International Monetary Fund's analysis paints a scenario where a "reversal of dollar weakness" (i.e., a shift from a weak dollar to a strong dollar) would be the trigger for Asia's "greatest risk." This would mean a reversal of the loose financial environment that Asia relies on as a buffer, making it more vulnerable to trade shocks.

This presents a dilemma for the US dollar: while its strength reflects its status, under the current circumstances, it could become a key catalyst for regional or even global economic pressures, ultimately backfiring. Therefore, the sustainability of any strengthening trend of the US dollar will be closely linked to the resilience of the Asian economy.

At 15:07 Beijing time, the US dollar index is currently at 99.00.