The emerging Asia upswing continues to pick up speed, inflation has accelerated, and India has started to lift policy rates. In May, we expect that rates will move up again in Australia and Malaysia. Worries over contagion from Greece have curbed the rise in Asian markets but Asia has deleveraged since its mid-to-late 1990s crisis. Only the Philippines and India still have relatively large government debt burdens but both countries have implemented credible fiscal consolidation policies in recent years and are able to grow rapidly. Vietnam’s budget gap is large but the country’s overall debt burden is small. The rise in Asian equity markets and in regional currencies should resume soon, especially as a relaxation of China’s renminbi peg against the US dollar looks close.
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