The danger of overheating in Asias booming economies
was highlighted yesterday by a senior IMF official, who called
for an accelerated pace of exit from monetary and
Anoop Singh, director of the IMFs Asia and Pacific
Department, said: Inflationary pressures have continued
to build up in the region.
He called on countries to employ exchange rate appreciation
and possibly capital controls to counter destabilizing inflows,
and to avoid asset bubbles.
Output is growing faster than expected across emerging Asia,
said Singh, pointing to the IMFs latest forecast of 8%
growth across the region this year, easing to 7% in 2011. China
is forecast to expand by 10-10.5% this year and 9.75% in
This surge in output, and a narrowing of output gaps, is
creating domestic price pressures and also drawing in capital
flows that exacerbate price pressures.
Rising inflation in Asia is partly due to high prices of
commodities, especially food but core inflation is also
rising and signs of price pressure have also emerged in
property markets in several economies, Singh said.
House prices in several economies China, Hong
Kong and Singapore are growing up at double digit
rates, he pointed out. In China, a property bubble
appears to be inflating in some of the larger cities.
The sluggish pace of recovery in advanced economies, coupled
with concerns about the quality of sovereign debt in some of
them and low interest rates, suggest that Asia will
remain an attractive destination for foreign capital.
These capital flows could intensify strongly, given that
there is still sizeable scope for asset reallocation to
emerging markets, he said.
The most pressing challenge for Asia is to manage the
exit from policy stimulus, said Singh. Some exit
strategies have been implemented but in general fiscal
and monetary policy is still accommodative, he added.
Singh pointed to excessively easy domestic financial
conditions in parts of Asia, and suggested that a
further tightening of monetary policy conditions, may be
needed, including exchange rate appreciation.
It is in Asias own interest that exchange
rates should be allowed to appreciate, argued Singh, saying
that this was an important component of economic
It is only natural that, as Asian economies
strengthen, so too their currencies would need to be
The pace of exit also remains gradual on fiscal
policy, he said. A faster withdrawal of fiscal
policy would help guard against the risks of overheating and a
build up of financial imbalances.