Higher oil prices from the Middle East conflict would act as a terms-of-trade shock for Asia’s largely energy-importing economies, squeezing households and firms and slowing growth. Inflation would remain manageable if oil stays near $85, but a rise to $100 or higher could push price growth above target in several economies. This probably wouldn’t prompt policymakers to hike rates, but it would cause most central banks to pause their easing cycles. External positions in most of Asia are strong enough to absorb a higher energy import bill, but more fragile economies such as Pakistan and Sri Lanka remain vulnerable if disruption persists.
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