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Pranab warns against volatility, asset price bubble

Last Updated: Sunday, November 15, 2009 - 00:57

Colombo: Finance Minister Pranab Mukherjee
today said the world economy is showing signs of recovery, but
warned against formation of asset price-bubbles and volatility
in the currency market.

"The world economy is showing signs of recovery ... the
risks, however, remain and the recovery would be a razor-edge
walk, especially because the signs of asset price-bubble and
heightened carry-trade activity are re-emerging," he said.

Mukherjee, who is on a two-day visit to Sri Lanka, made
these remarks while delivering the fourth LK Memorial Lecture
in honour of Sri Lankan leader Dr Lakshman Kadirgamar.

Carry-trade usually refers to speculative trade
activities in currencies and commodities. It is feared that
speculative capital flows can have adverse implications on
the forex and equity markets in the developing nations.

The Finance Minister`s statement comes just a day after
International Monetary Fund Managing Director Dominique
Strauss-Kahn had warned that the surge in capital flows into
the developing countries could destabilise local currencies
and asset prices.

"While capital inflows are generally beneficial, they can
raise risks of rapid and potentially destabilising movements
of currencies and asset prices...The resurgence of capital
flows into emerging markets, including several in Asia, is
presenting policy challenges," Strauss-Kahn had warned.

Mukherjee said the global output is expected to expand by
3.1 per cent in 2010, wherein the developed countries as a
group could grow at 1.3 per cent and the emerging and
developing economies could grow by 5.1 per cent.

Bureau Report

First Published: Sunday, November 15, 2009 - 00:57
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