‘Urgent Action’ Needed to Control Capital Flows, StanChart Says -

Bloomberg:

Emerging markets need to take “urgent action” on the surge of liquidity and capital flowing into their economies because they could spur inflation and trigger another crisis, according to Standard Chartered Plc.

The capital flows range from bank lending and portfolio investments to “hot money” and corporate bond issuance, economists Gerard Lyons and Natalia Lechmanova wrote in a report published today. Greater currency flexibility, tighter monetary policy and some capital controls are among measures that can be taken to help manage the inflows, they said.

“Just as excess liquidity contributed to problems in the Western developed economies ahead of the financial crisis, excess liquidity has the potential to trigger fresh economic and financial problems across the emerging world,” they wrote. “Many countries do not have the capacity to absorb such inflows and thus the money often ends up in equity or real estate, adding to inflationary pressures.”

The World Bank predicts as much as $800 billion in global capital flows this year, compared with about an annualized $450 billion to developing economies in the second half of 2009, it said in a report this month. In Asia, which is leading the recovery from the global recession, some central banks are already raising interest rates or taking steps to remove excess cash in their banking systems to fend off inflation risks.

 

Posted via email from Jim Nichols