The World Bank warned that rising capital flows to East Asia are fanning fears of asset bubbles and authorities need to be careful not to repeat the mistakes of the Asian financial crisis more than a decade ago.
Asian currencies are appreciating as low yields in developed countries drive capital into the region, the bank said on Tuesday. This could fan inflation, lead to asset bubbles and harm the banking sector. Uncoordinated intervention is only adding to global liquidity.
“We are seeing an effort by developing East Asia to deal with the large amounts of liquidity driven in very large part by the monetary policy easing in the US,” said Vikram Nehru, the World Bank’s chief economist for Asia-Pacific.
The developing economies of East Asia will grow 8.9 per cent in 2010, the World Bank said in its semi-annual East Asia and Pacific Economic Update report, from the earlier projected 8.7 per cent. Reuters