## Keeping Asia from Overheating

_IMF Blog, May 19, 2011_

## Source details

**Canonical URL:** [Keeping Asia from Overheating](https://www.imf.org/en/blogs/articles/2011/05/19/keeping-asia-from-overheating)

## Other formats

- [Markdown version](/en/blogs/articles/2011/05/19/keeping-asia-from-overheating/index.md)
- [Structured JSON version](/en/blogs/articles/2011/05/19/keeping-asia-from-overheating/index.json)
- [Bundle manifest](/en/blogs/articles/2011/05/19/keeping-asia-from-overheating/bundle-manifest.json)

## Bibliographic details
- Authors: Anoop Singh
- Published: May 19, 2011

---

### Summary of current conditions and risks
- Asia’s vigorous pace of growth has seen the region play a leading role in the global recovery.
- Headline inflation in Asia has accelerated since October 2010, mainly owing to higher commodity prices.
- Variations across countries reflect differences in the shares of food and energy items in expenditures.
- Signs of spillovers from commodity prices to a more generalized increase in inflation:
  - Expectations of future inflation have picked up.
  - Accommodative macroeconomic policy stances, coupled with limited slack in some economies, have added to inflation pressures.
- Inflation outlook:
  - Inflation is generally expected to decelerate moderately in 2012, after first increasing further in 2011.
  - Inflation risks remain on the upside due to low inventories, limited supply responsiveness, and persistent concerns about food shortages that could trigger an upward spiral in global prices.
- Asset market overheating signals:
  - Equity and bond markets seem in line with past norms (valuations and yields relative to historical trends), but credit growth has accelerated in recent months.
  - Property prices appear relatively buoyant in some cases, particularly in certain segments of the market in China, Hong Kong SAR, and Singapore.

### Policy implications and recommendations
- Monetary policy:
  - The need for policy tightening in Asia has become more pressing than it was six months ago, especially in economies that face generalized inflation pressures.
  - In addition to higher policy rates, exchange rate appreciation would help thwart overheating pressures by making overall monetary conditions tighter.
- Capital flows and macroprudential policy:
  - Capital inflows complicate policy tightening and remain an issue in a few countries, although such flows have moderated in recent months in many countries.
  - The 2010 run-up of inflows raised concerns about handling a “sudden stop” or reversal of capital flows.
  - Macroprudential measures could help complement the policy mix, particularly to address overheating in asset markets.
- Fiscal policy and social protection:
  - More fiscal consolidation would help reduce the burden to be borne by monetary tightening.
  - Consolidation should allow for targeted social programs to cushion the impact of inflation on the most vulnerable groups, and to maintain sufficient fiscal space for longer-term investment needs in infrastructure and social sectors.
  - Targeted spending is important for economic rebalancing and more inclusive growth, as noted by the author a couple of weeks ago.

### Outlook
- The IMF expects Asia to continue to be a key engine of global growth over the next two years.
- With overheating pressures now in clear sight, policies need to be geared toward keeping these pressures from boiling over in a way that could undermine Asia’s economic prospects and the global economic outlook.

*Anoop Singh, May 19, 2011 — IMFBlog (views are those of the author and do not necessarily represent the IMF or its Executive Board).*

---


## References

- [macroprudential measures](http://blogs.imf.org/2011/04/08/macroprudential-policy-filling-the-black-hole/)
- [I wrote about](http://blogs.imf.org/2011/04/28/asias-next-economic-growth-phase/)

_Source: https://www.imf.org/en/blogs/articles/2011/05/19/keeping-asia-from-overheating_