Inflationary pressures could force east Asian central banks to tighten monetary policy “sooner rather than later” to choke off emerging asset bubbles, the World Bank warned yesterday.

The bank said concerns about asset price bubbles were being reinforced by a rapid increase in equity and house prices across the region, notably in China, Hong Kong and Singapore.

The bank said, however, that before raising interest rates, monetary policy was likely to be tightened by “removing some of the support for liquidity in domestic and foreign currencies . . . returning reserve requirements to pre-crisis levels . . . and scaling back the scope for collateral eligible for accessing central bank facilities”.

Bank Indonesia yesterday held its rates at 6.5 per cent, indicating that inflation looked set to remain within the bank's target range.

Ahead of the Asia-Pacific Economic Co-operation leaders' summit in Singapore next week, Vikram Nehru, the World Bank's chief economist for the east Asia and Pacific region, warned that governments might have to act before full recovery from the global crisis was assured.

“Some governments in the region will have the fiscal space to sustain fiscal stimulus until recovery is on a firmer footing,” he said. “The time to begin removing monetary accommodation may come earlier, however, given concerns about asset price bubbles.”

In an update to its outlook for east Asia and the Pacific, which for the bank encompasses China, Indonesia, the Philippines, Thailand, Vietnam, Cambodia, Laos, Mongolia, Papua New Guinea and the island economies of the Pacific, the bank raised its forecast for economic growth this year by 1.4 percentage points from its April estimate to 6.7 per cent.