... but global creditors still warn of risks

MANILA, Philippines - Global creditors have warned against the risk of asset bubbles in Southeast Asia due to rising property prices and domestic credit growth.

Credit Suisse said the risk of an asset bubble faces the economies of the region due to the strong probability of overheating.

 In an interview with CNBC Asia, Credit Suisse head of India and Southeast Asia economies Robert Prior-Wandesforde said  the Indonesian government has been operating under a loose monetary policy.

“The policy authorities in the Philippines, Thailand and Malaysia are in significant danger of making the same mistake. In our view, evidence of overheating is set to become more obvious,” he said.

He implied that the central banks of these emerging Asian nations should be tightening monetary policy, starting with increasing interest rates despite the prevailing benign inflation environment.

Standard & Poor’s (S&P) also warned emerging Asia that the unprecedented surge of capital into its economies will create more headaches rather than benefits.

“Surges of capital inflows chasing relatively high growth and yields in emerging Asia put pressure on currencies to appreciate. Rising liquidity in financial systems can also lower local interest rates, and entice producers and consumers to lever up and potentially drive up asset prices, especially for property,” it said.

In most cases, monetary authorities are forced to intervene to keep their respective currencies at bay. These are usually accompanied by stiff regulations that would control local liquidity conditions.

“More aggressive tightening measures are likely to be required,” the S&P report added.

The international credit rating agency expects the Bangko Sentral ng Pilipinas (BSP) and the Bank Indonesia to be the first to raise rates.

 The International Monetary Fund (IMF) warned of overheating risks in the region, noting that Asian policymakers must be ready to act “early and decisively” to prevent the situation from escalating.

 Monetary authorities were urged to normalize policy as conditions move and implement prudential measures. Non-performing loans (NPLs) are expected to build up to levels seen earlier in the decade.

Earllier, the World Bank and the Asian Development Bank (ADB) made similar modest growth forecasts for the region.

Both multilateral lenders called on Asian governments to start reining in the supportive monetary and fiscal policies that had been adopted in the aftermath of the 1997 and 2007 financial crisis.

“Counter cyclical demand policies have helped sustain growth, but they may now risk stoking inflationary pressures and amplifying the credit and asset price risks that are emerging in the context of strong capital inflows into the region,” the World Bank said.