PRICE pressures remain the biggest worry for Asia, where high inflation is already threatening to spoil the gains against poverty achieved over the last two decades, the Asian Development Bank said in Kuala Lumpur yesterday.
"We are concerned that the rising food and fuel prices will make a dent in the fight against poverty," Rajat M. Nag, managing director-general of the ADB, told Reuters in an interview on the sidelines of the World Economic Forum on East Asia meeting in Malaysia's capital.
The ADB has forecast Asian inflation at 5.1 percent for 2008, but Nag said it would probably be higher.
"Our forecast for 2008 is 5.1 percent and that will be the highest in a decade. This was done in April, and we are updating, and I am sure the numbers will be probably higher," he said.
Asian currencies are weakening and asset markets are being strained on worries that rising inflation will soon hurt growth, investment and corporate earnings, and destabilise governments.
Asian policy makers are facing their toughest test since the 1997 financial crisis. Across the region, central banks are under pressure to tighten monetary policy to prevent US$130 oil and soaring commodity prices from seeping into wages and other costs.
But governments fear interest rate hikes could curb growth, which is already under pressure as the United States economy sputters.
The ADB forecast 7.6-percent growth for the region in 2008, down from 8.7 percent last year, which was the highest in two decades.
"Growth this year will be lower than last year but still fairly attractive, with a slight uptick in 2009," said Nag.
But he repeated that inflation remained the region's biggest challenge.
"All of this could be endangered if the inflation issue is not handled. Inflation is the greatest worry."
He said Asian countries will have to think not only of food and fuel prices, but overall inflation.
"Basically you have got to look at headline inflation, and there it is important that both monetary and fiscal policies come down very, very hard on inflation," said Nag.
However, he refused to say whether he thought governments and central banks around Asia have been too slow to tackle price pressures.
"Asia is certainly recognizing the seriousness of the situation," he said, referring to recent steps by a number of central banks, including a rate hike last week by the Reserve Bank of India.
"I think that stance has to be maintained and aggressively pursued."
But he stressed the need for monetary policy to be backed by fiscal efforts to dampen inflationary hopes, calling for a more organized way to help the poor cope with rising costs.
"Governments have to look at providing direct cash or income support to the most vulnerable rather than broad general subsidies," Nag said.