Asia should focus on the overheating threat (Jun 10)

The threats to the emerging Asia economic upswing have increased, but we believe that the problems in Europe and the turmoil in the markets will not escalate to a level which derails the region’s recovery. Moreover, we judge it most likely that China will see a modest rather than severe slowdown. Accordingly, Asia’s central banks should concentrate on the local risk that inflation moves up sharply. Policy rates everywhere apart from in Australia are still low relative to historical levels and compared to the current, and in prospect, annual gain in consumer prices. Admittedly the decisions are finely-balanced. But, over the next month, policy rates are likely to move up in New Zealand, India, the Philippines, and in Vietnam.