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World Bank Says East Asia Should Consider Stimulus Withdrawal




Asia ’s emerging economies should consider reining in monetary stimulus to curb the risks of asset bubbles and inflation as policy easing in developed nations spur capital inflows, the World Bank said. Demand-boosting measures that helped sustain growth “may now be counterproductive,” the Washington-based lender said in its East Asia and Pacific Economic Update released today. “As the global economy recovers, an emerging issue is the risk of overheating in some of the larger economies,” it said in a release accompanying the report.

The International Monetary Fund warned last week that risks from the easing policies of central banks around the world are increasing as the Bank of Japan (8301) joined its counterparts in the U.S. and Europe in unleashing monetary stimulus to end 15 years of deflation. Gross capital inflows into the East Asia and Pacific region surged 86 percent in the first quarter from a year earlier, the World Bank said in its report, adding to pressure on inflation and asset prices. “Near-zero interest rates and new and protracted rounds of quantitative easing in the United States, European Union, and Japan are inducing large capital inflows into emerging markets including in East Asia,” the World Bank said. “The risk of an asset boom in the markets, in which global liquidity spills over is emerging, with asset valuations moving ahead of fundamentals and possibly a correction down the road.” Some countries in the region, which accounted for 40 percent of global growth last year, need to manage renewed capital inflows through “an appropriate macroeconomic stance and sufficient flexibility in the exchange rate ,” the lender said. Withdrawing Support The World Bank’s comments echo those of International Monetary Fund Managing Director Christine Lagarde and the Asian Development Bank this month. Central banks in Asia should “think about the timing […]



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