The level of the inflows—which have sent Asian stocks and property prices skyrocketing—are close to or above historical trends in most economies including those in Southeast Asia, the IMF said.
“We are seeing financial pressures—you may call them imbalances, or the risk of imbalances—rising,” said Anoop Singh, director for the IMF Asia and Pacific Department.
“And because these can worsen quickly, they certainly are being monitored very carefully. Therefore the challenge policymakers face is how to guard against the potential build-up of national imbalances while continuing to deliver appropriate support for growth.”
Singh was speaking at a news conference launching the IMF’s regional economic outlook, which maintained projections that the region will grow 5.7 percent this year.
“Our basic point is that national stability concerns in Asia are generally rising and… are close to, or above trend in most economies, including in the Asean (Association of Southeast Asian Nations) region,” he said.
“And therefore monetary policymakers need to be ready to spot early and decisively to emerging risks of overheating.”
The IMF did not name any economy at risk of overheating, but stock markets in Indonesia, the Philippines and Thailand have recently seen steep increases.
Property prices in economies like Hong Hong and Singapore have also been red-hot, prompting the governments to introduce cooling measures.
In its report the IMF said the inflows have generally “not been excessive so far” but could reach levels difficult to manage.
Large flows of funds from industrialised economies into the region where they can get higher returns, and easy domestic credit due to low interest rates, have pushed asset prices sharply higher.
The speculative buying, contrasted to long-term investments, has sparked concerns about potential price bubbles which could deflate easily as the funds are withdrawn as quickly as they came in, devastating financial systems.
The IMF said governments in the region face a “delicate balancing act” of supporting economic growth while managing the huge money flows.
It suggested that the funds should be invested in infrastructure, education and health to support more inclusive and sustained economic growth, and also urged regional governments to broaden domestic revenue sources.