World Bank expects China's economic growth to bounce back to 8.4 pct in 2013 (5)

The recent resurgence in capital inflows have not yet been associated with strong appreciation pressures on the currencies, due in part to the offsetting weakness in the current accounts. But the if the capital inflows continue, appreciation pressures may accumulate, raising the costs to the central banks of sterilized intervention in the exchange rate market. Authorities would then face the decision to either reduce domestic interest rates, let the exchange rate appreciate, or control capital flows. Lowering the domestic interest rates is currently not a good option for most countries, while appreciation of the local currency would make exports more expensive, the report said.

Countries that have experienced high credit growth should be particularly alert. Efforts are needed to improve the effectiveness of banking sector supervision in crucial areas, such as risk management, information disclosure requirements and corporate governance, and to enhance macro-prudential regulations.

"It is advisable that such efforts are dispensed pre-emptively, as many commonly used barometers of banking sector health, such as non performing loans, are a lagging indicator, and do not have predictive power," the report said.