Balancing growth and inflation concerns

 The US Federal Reserve is widely expected to cut its policy rate by 25 basis points to 2 per cent in its current meeting. But many also expect monetary easing to come to an end.

The Fed has cut its benchmark interest rate six times since September by a combined 3 percentage points to 2.25 per cent to avert a recession and spur lending.

But as a result, inflation is now heating up with oil and food prices skyrocketing.

The US consumer price index jumped 4.2 per cent in the first three months compared to the same quarter last year. That's almost double the pace of the first quarter of last year.

In the United Kingdom, there is disagreement among some monetary policy-makers about whether to choose growth or check inflation.

David Blanchflower said the Bank of England needed to take "aggressive action" and cut interest rates soon to avert a recession. His comments went against those of eight other policy-makers at the bank, who see inflation as a much graver threat.

In Asia, Standard & Poor's believes more should be done to prevent inflation from rising further.

It said Asian central banks had less room to cut rates to spur growth, as inflation in the region is expected to accelerate.

"With inflation running at very high levels in most countries, the ability of central banks to reduce interest rates to offset the impact of the US slowdown is going to be constrained," said Subir Gokarn, Asia-Pacific chief economist at Standard & Poor's.

The Bank of Japan kept interest rates on hold yesterday, while the Reserve Bank of India (RBI) and Bank Negara of Malaysia earlier left their benchmark rates unchanged.

 The RBI may also order lenders to set aside more cash for a third time this year in order to tame inflation, already running near a three-year high.

Governor Yaga Venugopal Reddy is reluctant to increase interest rates on concerns that it may weaken the economy.

"The Reserve Bank is trying to balance both growth and inflation," said NS Venkatesh, chief executive officer of IDBI Gilts, a Bombay-based primary dealer that underwrites government debt sales.

 His comment echoes a critical situation faced by most central banks today.