Strong economic growth in the Asian region and rising interest rates are luring more capital inflows.
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However, many observers stressed that unlike the months before the financial crisis hit Asia in 1997, there are some concerns about money flowing in. But for now, there is still room for fund inflows getting policy making worried.
The recovery in Asia from the financial downturn in 2009 has been strong. Just this week, the International Monetary Fund (IMF) raised its growth forecast for the Asian region to 7.1 percent for 2010 and 2011. However, it warned that the capital flows into the region could be a threat.
According to many market observers, such inflows could create a problem for the central banks looking to fight rising inflation and tighten policy in Asia.
Irvin Seah, an economist from DBS Group Research, said: "When you hike interest rates or when you appreciate your currency, essentially, you would help to cool economic activity. However, the repercussion of that is that you will attract more hot money to flow into your money, because higher interest rates or strong currencies essentially mean higher returns."
India, Malaysia and Singapore have already tightened their monetary policy and other central banks in Asia are expected to follow this year.
Several observers also noted that the fastest growing economies like Taiwan and Singapore will be the most vulnerable, along with economies with rising asset prices such as Hong Kong and China.
However, some experts said it might be too early to panic.
Although similar cases were seen leading up to the 1997 Asian financial crisis, some said that things seem to be different today, and capital inflows are not at dangerous levels yet.
"With increasing concerns about Greece and about sovereign debt across the periphery of Europe, risk appetite globally is on the wane. So I don’t think speculators are in a position to increase bets on risky high-yielding assets around the world," said P K Basu, chief economist of Daiwa Capital Markets.
Some market observers said that stabilizing commodity prices could restrict inflation, giving Asia’s central banks some room for additional accommodative monetary policies.