Page last updated at 09:07 GMT, Friday, 4 July 2008 10:07 UK

Recession in Asia is 'unlikely'

People queuing for cheap rice in Manila
Food prices have been causing problems throughout Asia

Growth in Asian economies may slow this year, but a recession is unlikely, according to Haruhiko Kuroda, head of the Asian Development Bank.

He said the region's biggest concern was inflation, even though many countries, such as Taiwan and Vietnam, have raised interest rates this year.

Mr Kuroda said there were dangers of destabilisation due to the growing gap between US and Asian interest rates.

But he said a repeat of the Asian currency crisis was unlikely.

"I'm reasonably confident that nothing like the Asian currency crisis 10 years ago would happen in the region, simply because many emerging economies in Asia have accumulated a large amount of foreign exchange reserves," he said.

Financial crisis

There is some disagreement about the root causes of the Asian financial crisis that began in 1997, but differentials between US and Asian interest rates are likely to have been involved.

US interest rates currently stand at 2.0% while rates in India, for example, stand at 8.5%. This means investors might consider using US dollars to buy rupees to take advantage of better returns.

But that effect only works if inflation is low enough not to wipe out any returns on deposits.

Asian currencies such as the Korean won and the Indian rupee have been falling in recent weeks amid concern that their central banks have not been doing enough to combat inflation.

Indian inflation has hit a record high of 11.63% while Vietnam's inflation stood at 26.8% in June. Inflation in the Philippines is currently at a 14-year high of 11.4%.




SEE ALSO
Inflation dangers 'threaten Asia'
15 Jun 08 |  Business
Asian bank in food crisis warning
03 May 08 |  Special Reports
India raises rates unexpectedly
11 Jun 08 |  Business
South Korean inflation picks up
02 Jun 08 |  Business
Food prices drive China inflation
12 May 08 |  Business
Asian bank offers food price help
18 Apr 08 |  Business

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