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MANILA: The Asian Development Bank cut its inflation forecast for developing Asia on Wednesday, as food and fuel prices eased, supply chain disruptions waned and interest rate hikes started to bite.

Inflation, which has squeezed household budgets and left millions of poor households struggling to put food on the table, is heading back towards pre-Covid levels, the Philippines-based lender said.

It expects inflation of 3.6 percent this year, compared with its forecast in April of 4.2 percent as prices in China ease sharply, the bank said in its flagship outlook report.

Developing Asia refers to the multilateral lender’s 46 emerging member economies, stretching from Kazakhstan in Central Asia to the Cook Islands in the Pacific.

The ADB kept its economic growth forecast of 4.8 percent for 2023, citing robust consumption, travel and investment, even as global demand for the regions’ exports weakened.

ADB’s report identifies major economic challenges

Further upside to its forecast was possible, the bank said.

“If inflation is tamed more quickly than currently expected in the advanced economies, the authorities there would likely adopt a more dovish monetary policy, which would support growth in the region,” ADB said.

At the same time, the lender warned an escalation in Russia’s invasion of Ukraine could fuel price hikes, while the return of the El Nino weather phenomenon this year could hurt economies.

The tide was also turning on interest rates, the bank noted.

“With lower inflation in developing Asia and more moderate monetary tightening in the United States, most central banks in the region have kept policy rates steady this year, with signs emerging of a shift toward easier money,” it said.

China, the world’s second-largest economy, is still expected to grow at five percent this year and 4.5 percent in 2024, the bank said, citing supportive monetary and fiscal policies.

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