ADB suggests tight monetary policies over inflation

Source: Agencies  |   2008-6-15  |     ONLINE EDITION

ASIA'S growth is threatened by spiraling inflation from higher food and fuel costs, an Asian Development Bank executive warned today, and called on governments to tighten monetary policies to deal with the scourge.

The bank is reviewing its growth forecast of 7.6 percent this year for Asia, excluding Japan, amid concerns inflation will widen income inequality and cause more people to plunge into poverty, said its managing director general Rajat M. Nag.

This comes after Asia's growth last year hit a two-decade high of 8.7 percent.

The ADB in April forecast inflation to hit 5.1 percent this year, the highest in a decade. But this forecast may go up, Nag said.

Among the worst hit is Vietnam where inflation is more than 25 percent. Singapore, Thailand, India, the Philippines and Indonesia are looking at inflation rates of between 7.5 percent and 11 percent.

"The growth story is in danger because there are inflationary dark clouds in the horizon, which we have to recognize as the greatest concern," Nag said on the sidelines of a two-day global economic forum in Kuala Lumpur, Malaysia.

"We feel that monetary policies have to be tightened so that inflationary expectations are tamed," he said. Among the measures he suggested were raising interest rates, increasing banks' reserve requirement and ensuring a flexible exchange rate. Some central banks have already raised borrowing rates in the past two months.

Surging food prices, stoked by rising fuel costs that have increased production and transport costs, have triggered protests around the world in recent months. Riots have erupted over food shortages in the Caribbean and Africa.

A number of Asian nations including India, Malaysia and Indonesia recently cut fuel subsidies amid rising world oil prices, which is expected to further send inflation soaring.