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NEWS UPDATES 4 November 2010

Asean girds for asset bubble

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The Hong Kong Monetary Authority warned of "the risk of an asset bubble" in the territory's housing market and Thai Finance Minister Korn Chatikavanij said central banks in the region are in touch and may act jointly against currency speculators.

The International Monetary Fund has urged Asia- Pacific nations to withdraw policy stimulus to head off asset- price pressures, as their world-leading economies draw capital because of low interest rates in the U.S. and other advanced countries. Today's reactions of regional policy makers reflect the international ramifications of the Fed's decision yesterday to inject $600 billion into the U.S. economy.

Asian currencies have climbed against the dollar this year as the region's growth outpaces the rest of the world. Regional central banks from China to India and Australia have raised interest rates to curb inflation pressure, while countries including South Korea and Indonesia have adopted measures to slow the flow of speculative money.

The Philippines central bank said global financial markets will be calmer and the decline of the U.S. dollar will ease after the Fed purchase plan came "in line" with forecasts. Funds may continue to flow to emerging markets because of low U.S. yields, Bangko Sentral ng Pilipinas Governor Amando Tetangco said.

Thailand's Korn said his nation's "central bank told me that they are in close talks with other regional central banks. If necessary, they may jointly issue measures to prevent excessive speculation," he told media in Bangkok.

In 2009 Asean, together with Japan, China, and South Korea, signed an agreement to create a $120 billion foreign-currency reserve pool. Member nations are able to tap the pool, set up in a framework of bilateral currency swaps, in times of turmoil to defend their exchange rates.

Currency policies by Asian central banks have differed in recent months. While Thailand, Japan and South Korea have taken steps to cool an appreciation in their currencies that is threatening exports, Singapore has signaled it will allow faster exchange-rate gains.

The IMF said in its Regional Economic Outlook for Asia and the Pacific on Oct. 21 that "history suggests that Asia can be susceptible to asset boom-bust cycles during periods of 'excess liquidity.'"

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