East Asia asset price warning from World Bank

Outlook remains strong

Concerns over asset price bubbles in east Asia are growing thanks to a rapid increase in equity and house prices across the region. As such, the World Bank has warned central banks to tighten monetary policy "sooner rather than later."

According to their warnings, before raising interest rates in the region, monetary policy was likely to be tightened by "removing some of the support for liquidity in domestic and foreign currencies, returning reserve requirements to pre-crisis levels and scaling back the scope for collateral eligible for accessing central bank facilities."

The concerns come ahead of next week's Asia-Pacific Economic Co-operation leaders' summit in Singapore. The World Bank's chief economist for the east Asia and Pacific region, Vikram Nehru, has now explained that governments may need to act before a full recovery from the economic meltdown has been assured.

"Some governments will have the fiscal space to sustain stimulus until recovery is on a firmer footing," he warned. "But the time to begin removing monetary accommodation may come earliergiven concerns about asset price bubbles."

Already, for instance, Bank Indonesia has held its interest rates at 6.5 percent, suggesting that inflation remains within the bank's target range.

Growth

Now, updating to its forecast for east Asia and the Pacific region, which for the World Bank includes China, Indonesia, the Philippines, Thailand, Vietnam, Cambodia, Laos, Mongolia, Papua New Guinea and the island economies of the Pacific, the bank has raised economic growth this year by 1.4 percentage points from its April estimate to 6.7 percent.

According to reports from the bank, the financial services outlook for the region remains strong - with particular influence coming from China, where a predicted increase in GDP this year would offset three-quarters of the decline in the US, the eurozone and Japan.

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