Well placed to face the challenges ahead (Feb 10)

The emerging Asia upswing has picked up speed and inflation has increased. More central banks have indicated that monetary policy needs to be tightened and, over the next month, we expect rates to move up in Malaysia and in Australia. The markets for a while will continue to worry about what damage the withdrawal of stimulatory policies will cause. Global issues are also likely to hold down risk appetite for a while. But we believe that most Asian policymakers will strike the right balance. The tightening should be enough to curb inflation without being so severe that it chokes off growth. The global backdrop, we believe, will darken during the course of 2010. But private-sector spending and policy flexibility should ensure that any impact on Asia (ex-Japan) is small.