Singapore says Asia must not delay tightening ‘too long’

SAN FRANCISCO, June 7 (BestGrowthStock) – Asia will need to start
gradually tightening monetary policy and should not rely on
short-term exchange rate policy to combat the inflationary
effect of capital inflows, Singapore’s finance minister said on
Monday.

“Asia cannot delay for too long a return to gradual
monetary tightening, and all that implies for currencies as
well,” Singapore’s Finance Minister Tharman Shanmugaratnam said
at the San Francisco Federal Reserve Bank’s Asian Banking and
Finance conference.

“Monetary policy will have to focus on the medium-term
challenge of inflation, of goods prices and asset price
inflation.”

With capital inflows creating potential asset bubbles in
emerging economies, he said, one “theoretical solution” would
be to inflate currencies, he said. But such an approach would
not be effective, he said.

“I don’t believe exchange rate flexibility in the short
term is the best way of dealing with capital flows,” he said.

Tightening fiscal policy must also play a role in reducing
global excess liquidity, he said, although there could be
problems if all countries “run for the exits” at the same time,
he said.

Tharman said as recently as last month that China should
let its currency begin to rise more rapidly after pausing
during the financial crisis of 2008.

On Monday he said he sees exchange-rate flexibility as
“part and parcel” of a building consensus for tightening
monetary policy across Asia.

He also warned against the potential for a second global
credit crunch if the instability from Europe’s debt crisis
spreads to other regions.

“I don’t think we are back in a 2008 situation,” he said.
“I don’t think the situation fundamentally warrants the degree
of uncertainty we saw post Lehman. But there are risks. We will
have to be alert and adroit in the way we respond to these
risks.”

Stock Research
(Reporting by Ann Saphir; Editing by Kenneth Barry)

Singapore says Asia must not delay tightening ‘too long’