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ADB: Asia to pause inflation fighting policy

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[August 11, 2011]  SINGAPORE (AP) -- Asian central bankers will likely pause measures to contain high inflation until global market turmoil subsides, the chief economist at the Asian Development Bank said.

A plunge in equity and commodities prices during the last week and growing concern the U.S. could fall back into recession will probably convince policymakers to halt interest rate hikes and currency appreciation, at least temporarily, the ADB's Changyong Rhee said Thursday in an interview with The Associated Press.

"They will probably stop tightening for the next few weeks and months," Rhee said. "Once the market stabilizes, they will have to think about inflation again."

Asian economies, excluding Japan, grew more in the first half than the ADB had forecast, but prices rose faster than expected as well, Rhee said. For the past year, Asian governments have sought to dampen quickening inflation with higher interest rates, stronger currencies and slower spending growth.


Falling energy and food costs -- crude oil has slid 28 percent since May -- should help ease inflation pressures, Rhee said.

The central banks of Indonesia and South Korea left their benchmark lending rates unchanged at policy meetings this week.

The ADB expects the U.S. economy to grow this year. However, if there is a sharp drop in export demand from developed countries in the second half, the economies of South Korea, China and Taiwan would be hurt the most, while India and Indonesia would be less affected, Rhee said.

"Asia is not yet decoupled from the West," he said. "Even though we are getting more independent, Asia is still dependent on exports to the U.S. and Europe."

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Earlier this year, the ADB forecast the gross domestic product of emerging Asia would expand 7.8 percent. The bank plans to announce updated forecasts next month.

Rhee said the most troubling aspect of the current debt crisis is the lack of agreement among policymakers about how to solve it. Some economists argue more government spending would help prevent an economic slowdown while others say austerity measures that cut fiscal deficits would restore confidence.

"Investors are worried about a lack of a coordinated effort among the major players," Rhee said. "There's no consensus of what we need to do."

Before joining the ADB in February, Rhee served as an adviser to the Bank of Korea.

[Associated Press; By ALEX KENNEDY]

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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