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TOKYO -(Dow Jones)- Inflation is the "number one challenge" facing emerging Asian economies, with soaring food prices raising the specter of malnutrition for Asia's poorest, Asian Development Bank President Haruhiko Kuroda said Friday.
Many of Asia's emerging economies face a monetary policy dilemma, Kuroda told reporters at the Foreign Correspondents Club of Japan on the eve of a summit of G8 leaders in northern Japan this weekend.
Inflation "is of most concern at the moment," he said, but a central bank's standard response - raising interest rates to tighten the money supply - presents its own problems.
"Raising rates may harm growth precisely when it's needed most," he said.
In addition, Kuroda said, with the U.S. federal funds rate at just 2% and the Bank of Japan's policy rate at 0.5%, if emerging Asian nations raise interest rates "the wider differentials may attract volatile portfolio investment and fuel asset price inflation, increasing the risk of a hard landing."
-By Michael S. Arnold, Dow Jones Newswires; 81-3-5255-2929; michael.arnold@dowjones.com
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(END) Dow Jones Newswires
July 03, 2008 23:37 ET (03:37 GMT)
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