Asian currencies to rise in 2007, exchange rate flexibility needed

Published: Wednesday, April 18, 2007, 20:37 [IST]

Bangkok, Apr 18 (UNI) Capital inflows and distortions in the US economy will push up major Asian currencies this year, requiring greater exchange rate flexibility by countries in the region, said a United Nations assessment released here today.

According to the UN's Bangkok-based Economic and Social Commission for Asia and the Pacific (UNESCAP), exchange rate management will be the main economic challenge facing Asia's economies in 2007.

In its annual appraisal of the region's economic and social profile, UNESCAP said Asian countries must brace for a less favourable external economic environment largely due to the slowing down of the US economy.

Six major economic risks facing the region in 2007 include an oil price shock, an abrupt cooling of housing markets in the United States, a disorderly unwinding of global imbalances, a reversal of the Japanese economic recovery, economic 'overheating' in China and an avian flu pandemic.

India along with China and Japan is projected to continue powering the region's economic growth this year.

The Economic and Social Survey 2007, Surging Ahead in Uncertain Times, predicts economic growth in Asian developing countries to decline from 7.9 per cent in 2006 to 7.4 per cent this year.

Inflation levels in Asian developing countries are also projected to come down to an average of 3.8 per cent in 2007.

UNESCAP experts disapprove of central bank interventions to keep currencies from strengthening as these are inflating asset values, especially in the housing and equity markets.

The region's Central Banks can choose any two of three policy options: targeting exchange rates, having an independent monetary policy, or keeping capital accounts open but not all three, survey noted.

It prescribes greater exchange rate flexibility as one sustainable solution that would take away the 'one-way bet' that encourages speculative capital inflows.

A first-time assessment of the economic loss from gender bias in Asia estimates that countries in the region are losing between 42 to 47 billion dollars annually as a result of limited work opportunities for women.

India could boost its GDP by 1.08 per cent if women's work participation in the country was brought to the same level as in the United States, the UNESCAP survey estimates.

UNI

 

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