Istanbul: There are no serious risks of asset bubbles forming in Asia at present and the time for monetary tightening has not arrived, an International Monetary Fund (IMF) official said on Monday.
Evidence of entrenched growth over several quarters will be needed before Asian countries shift their policy to withdraw monetary stimulus, Anoop Singh, director of IMF’s Asia and Pacific Department, said in an interview.
Singh, speaking on the sidelines of IMF meetings in Istanbul, played down concerns that some Asian asset prices, such as stocks in China and property in South Korea, had already inflated to bubble-like proportions.
“We do not yet believe that these are significant risks presently. There may be areas of potential risk, and prudential measures are being taken in these countries,” he said.
Reducing trade imbalances in the global economy has been a major topic at the Istanbul meetings. China runs a huge trade surplus and its tightly managed exchange rate regime is controversial, but Singh made clear that IMF would not focus excessively on the Chinese currency.
Yuan appreciation is important but not sufficient to shift China’s economic model toward greater domestic consumption, he said. “It is not the case that one instrument, the exchange rate, is going to achieve the objective of the rebalancing that is needed. It is going to involve policies across the spectrum.”
Singh noted that China was ramping up social spending, a crucial step in reducing precautionary savings, and added that changes in its economic structure could not be expected to occur overnight.
When IMF toughened its exchange-rate monitoring rules in 2007, Beijing feared that was a ploy by the US to enlist the organization’s support in the US campaign for a stronger yuan.
China blocked IMF’s annual assessment of its economy until the fund reversed the rule change this year.
In recent months, China and IMF have gone a long way to mending their relationship, with China agreeing to buy up to $50 billion in IMF bonds. IMF can use the funds raised to support economies hit by the financial crisis.