The much-talked-about exit from easy monetary policy has begun, with the Reserve Bank of Australia becoming the first G-20 central bank to raise interest rates.

Its governor Glenn Stevens has listed the reasons for his decision: solid growth in housing credit and rising house prices and strong growth in the countries of the region, especially China, which is raising commodity prices.

His reasons will be closely scrutinized by the other central bankers in the region, particularly as Australia’s gross domestic product grew by a mere 0.6% in the second quarter of 2009 and its consumer price inflation is all of 1.5%.

Small wonder that Reserve Bank of India governor D. Subbarao has been making hawkish noises. In a recent note on Asia, HSBC economists Robert Prior-Wandesforde and Frederic Neumann said that for Asia, “while growth has started to decouple, monetary policy so far has not. After years of shadowing the (US) Federal Reserve, the region’s central banks face a monumental task in setting an independent course for monetary policy. The truth is that monetary conditions in Asia remain far too loose for comfort."

They made the point that the risk lies not only in fanning inflation expectations, but also in giving rise to asset bubbles.

The JPMorgan Global Purchasing Managers’ Index for September shows that both manufacturing and services are expanding, with the global all-industry business activity index at a 21-month high. That should slowly but surely lead to more and more banks starting to tighten.

The extremely benign liquidity conditions prevailing at present may well be starting to turn.