Asia is leading the global recovery but must beware of inflation and “excessively easy” domestic finance fuelled by foreign capital inflows, the International Monetary Fund said on Thursday.
The Fund's latest economic outlook for the Asia-Pacific region said growth would moderate in 2011 in the advanced economies while remaining "particularly strong" in China, India and Indonesia.
It also said "greater exchange rate appreciation" may be needed to shield countries from hot money inflows.
"Greater exchange rate flexibility offers an important buffer against the risk posed by large capital inflows," the report said.
China's allegedly undervalued yuan has been the target of strong complaints from the United States and Europe, who say Beijing is unfairly gaining a trade advantage by cheapening its exports.
Global currency wars are expected to be high on the agenda at a Group of 20 finance ministers' and central bankers' meeting in South Korea this weekend.