SINGAPORE, Feb. 15 (Xinhua) -- Monetary Authority of Singapore (MAS) managing director Heng Swee Keat could hardly afford to cheer in the months ahead, despite his acceptance of the award of Central Bank Governor of the Year for Asia-Pacific by British banking magazine The Banker late last week.

Like many other Asian counterparts, Heng is now facing a booming economy with inflation accelerating. He has to lead the Central Bank of the Republic to tread a fine line between the tightening of monetary policy and maintenance of economic growth. The balancing act undertaken by the central banker is certainly not easy, but the adoption of a faster pace of currency appreciation against the backdrop of faster improving economy has worked well so far for Singapore to prevent the inflation from deteriorating too fast.

Among most economies of Asia, inflation has picked up momentum since late last year. Singapore's Consumer Price Index (CPI), which is a key gauge of inflation in the Republic, had hit a two- year high of 4.6 percent in December last year, and it was widely expected to inch closer to 5 percent last month.

Similar trend is also seen in other parts of Asia. For instance, last month's inflation rose 7.02 percent compared to a year ago in Indonesia, which was the first time in 20 months that the year-on- year figure had exceeded 7 percent, prompting the central bank to raise interest rate by 25 basis points early this month for the first time in 18 months.

The accelerating inflation in Asia during this period was largely boosted by higher commodity prices feeding into food prices. The weakening trend of U.S. dollars in the medium term may create another round of commodity price rally similar to mid-2008. All this will eventually translate into higher consumer price inflation ahead.

"The risk in Asia is policy (that) is either too slow to respond,"Nomura chief economist Asia Robert Subbaraman warned, adding"or the micro or piecemeal measures that have been introduced..are going to lose their effectiveness over time."

Besides raising interest rates to combat higher inflation rates, other liquidity management tools such as banks' reserve requirement (BRR) could be employed due to concerns about capital inflows and economic growth sustainability. There are also talks of direct price control to arrest runaway inflation, liked the Price Control Act which was introduced in Singapore in 1973 and 1990 to curb profiteering behavior among sellers.

Nevertheless, analysts here pointed out that the challenges faced by Asian central banks as a result of higher inflation are quite daunting, and the tightening of monetary policy alone has its shortcomings.

"Asian central banks will be pushed to tighten monetary policy somewhat in first half of 2011, but the irony is that higher yields will result in more liquidity inflows, thereby exaggerating inflationary expectation over time,"Singapore's UOB Economic- Treasury Research team said in its Quarterly Global Outlook 1Q2011.

Even allowing currency to appreciate further, which is the policy MAS led by Heng stands by all this while instead of raising interest rate or money supply, will come with a cost. While food and oil imports may have become cheaper as Singapore dollar strengthens, the local exports will at the same time become more expensive and thus less competitive. This probably will be the issue that Heng may need to look into over time after receiving the award.