The International Monetary Fund (IMF) expected Asian economies to consider measures to manage capital inflows as an alternative in dealing with an influx of short-term foreign capital unleashed by economic stimulus measures of high-income economies.
Bank of Thailand governor Prasarn Trairatvorakul (right) shares a laugh with Kiyoshi Kodera, vice-president of Jica, at the seminar on Monday. TAWATCHAI KEMGUMNERD
Deputy managing director Naoyuki Shinohara said the short-term capital inflows would continue to increase in emerging economies, including those in Asia, drawn by their relatively better economic growth prospects.
The financial markets are anticipating more liquidity as large economies, constrained by high public debt, are counting on their central banks' money injection to kick-start recovery, he told the seminar entitled "Frontier Asia: Economic Transformation and Inclusive Growth in Frontier Economies".
The event was jointly organised by the IMF and the Japan International Cooperation Agency at Grand Hyatt Erawan in Bangkok yesterday.
The US Federal Reserve recently announced to keep its policy interest rate at near zero and keep buying financial assets until unemployment falls to a certain level.
The Bank of Japan has adopted an inflation target of 2% with a plan to increase asset purchases in 2014.
Mr Shinohara said such monetary easing measures were "appropriate" and "needed" to strengthen their growth which would ultimately benefit the world economy although they affect regional financial markets and currencies.
"There are occasions when the monetary easing policies could lead to increased capital flows to emerging markets," he said.
"And there are occasions when the flows are volatile and put economies into difficulty in managing economic policies. There may be occasions when economies have to use capital-flow management tools to manage their economies."
Mr Shinohara said the proactive monetary policies of high-income countries could still be in place in the foreseeable future as their economies have remained weak.
Strong domestic demand has led to a boom in credit growth in Asia.
"It is currently a common feature in Asia that they have very strong credit growth with contained inflation expectations. This is a small sign of credit bubble coming up. But the issue is not an immediate risk," he said.
Prasarn Trairatvorakul, the governor of the Bank of Thailand, said the central bank would discuss the Federation of Thai Industries' requests on its baht management. One topic is the relaxation of the period exporters can hold the dollars from one year.
A rise in short-term inflows reflected that investors were not certain the baht would firmly appreciate, he said.
Mr Prasarn ruled out the need to lower the policy interest rate from currently 2.75% to counter the baht appreciation, saying the interest rate return is not the only factor dictating the flows.
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- Writer: Parista Yuthamanop