Peter Pang: Managing the next phase of growth in Asia Welcome remarks by Mr Peter Pang, Deputy Chief Executive of the Hong Kong Monetary Authority, at the IMF’s Asia and Pacific Regional Economic Outlook, Hong Kong, 28 April 2011. *  *  *  1. Good morning. It is my great pleasure to welcome you all to the launch of the latest issue of the IMF’s Asia and Pacific Regional Economic Outlook (REO). We are honoured to have Mr. Anoop Singh, Director of the Asia and Pacific Department of the IMF, and his colleagues to share with us today their views on the region’s economic and financial developments, the outlook and the challenges, and what can be done to manage the risks and promote sustainable growth in the years ahead. 2. I like the theme of this issue of the REO – “Managing the Next Phase of Growth” – as this is what concerns us most in Asia at this juncture. We are now some two-and-a-half years after the outbreak of the global financial crisis, and Asia has been leading the global recovery – a recovery that is maturing as rightly pointed out by the IMF. The question is where and how we should move on from here. And looking ahead, managing the next phase of growth is very challenging as we are facing complications of unprecedented scale and dimensions. 3.
The divergence in the growth rates of advanced and emerging economies have been driving fund flows to Asia, resulting in signs of overheating in certain pockets of the region. The increasingly negative real interest rates as a result of rising inflation in many regional economies will add fuel to the already high credit growth and heated asset markets. That said, we must also be wary of the risk of reversal of the fund flow. The recent surge in headline inflation and the more favourable near-term cyclical conditions in advanced economies have already brought forward expectations of the start of rising interest rate cycles. With the normalisation of monetary policy stances in the advanced economies becoming more imminent, the risk of an abrupt reversal of international capital flows is increasing. This calls for pre-emptive policy actions to contain the build-up of overheating pressure and another boom-bust cycle in the region before such abrupt reversals of capital flows occur. BIS central bankers’ speeches  1  6. Secondly, some of the conventional wisdoms in monetary policy may be challenged by paradigm shifts in the next phase of growth. Conventionally it has been suggested that central bank normally may not need to react proactively to commodity price inflation because of their transitory nature and limited pass-through to core inflation. However, the recent increase of commodities prices such as food and oil could be more sustainable because of structural change in demand and supply.