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Business News/ Home Page / Loose rate policies suit Asia, for now: ADB chief
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Loose rate policies suit Asia, for now: ADB chief

Loose rate policies suit Asia, for now: ADB chief

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New York: Asia’s speedy economic recovery relative to the rest of the world is not yet strong enough to withstand tighter monetary policy, Asian Development Bank president Haruhiko Kuroda said on Monday.

“You see, at this stage the economic recovery, even if not fragile, (is) not so solid. So monetary policy will continue to be expansionary for some time," Kuroda told Reuters in an interview before a speech at Columbia University.

“That might encourage some asset markets to overreact, so to speak. But at this stage, it is not advisable for monetary authorities to tighten monetary policies," he said.

The ADB expects developing Asian economies on average to grow 3.9% this year and 6.4% next year.

The so-called Group of Three or G3 -- Japan, the United States and the euro zone -- are projected by the bank to contract 3.7% this year and grow 1.1% in 2010.

Kuroda said inflationary pressures remain low and in fact are not rising in many countries, allowing them to keep interest rates low.

But when they do start to take away the monetary and or fiscal stimulus, there is no compelling reason for Asia do so all at once.

“It all depends on country circumstances... No need for emerging economies to exit in a synchronized manner, or fiscal and monetary policy exits at the same time." Kuroda said.

Who tightens first?

Kuroda pointed to South Korea’s measures to reign in real estate prices as careful management that has allowed them to hold off on raising interest rates.

South Korea’s top state-run research agency, the Korea Development Institute (KDI), said the government should phase out emergency policy measures after predicting Asia’s fourth-largest economy would grow 5.5% next year.

For India, Kuroda noted that while the country managed the crisis and its own fiscal situation relatively well, the nation’s high deficit will probably result in it being among the first to start removing stimulus measures.

“If you look at the macro figures, then India’s fiscal situation is not so good. India’s fiscal deficit in relation to GDP is quite high. I think once the economic recovery is solidified, probably the government would exit," he said.

India’s fiscal deficit is forecast to rise to 6.8% of GDP in the year through March 2010, a 16-year high, compared with 6.2% in the previous year.

This is a result of fiscal stimulus measures as well as the economic downturn, which cut government revenues.

Separately, Kuroda reiterated that emerging economies may not benefit from having free floating currencies.

“Generally, I think for emerging economies, free-float won’t provide the best basis for their economic engagement with the global market... That does not mean that all emerging countries need or should adopt heavily managed float systems," Kuroda said.

“Many emerging economy currency markets are thin, shallow, and subject to large fluctuations if left completely free. So some sort of management is necessary and appropriate."

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Published: 24 Nov 2009, 11:10 AM IST
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