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The Asian Development Bank lowered its economic growth forecasts for the region as a global slowdown weighs on exports and expansions in China and India cool.

Asia excluding Japan is predicted to expand 7.6 percent this year, less than a September estimate of 8.2 percent, the Manila-based institution said in a report today. The economies grew 8.7 percent in 2007, the fastest clip in almost two decades.

Central banks will pursue policies to quell inflation rather than spur economic growth, the ADB said, the second organization this week after the World Bank to warn of the threat of rising energy and food prices to the region. China will implement a “tight'' monetary policy this year, the government's State Council said yesterday.

“The major risk lies not so much in softer growth but in rising commodity prices and accelerating inflation,'' the ADB said. “Appropriate macroeconomic responses to accelerating inflation are likely to include tighter monetary policy and some exchange-rate appreciation.''

Crude oil rose to a record $111.80 a barrel last month, while prices of food staples including rice, wheat and soybeans and palm oil have surged amid increased demand and higher fuel and freight costs.

In China, inflation has quickened to the fastest pace in 11 years, while consumer prices in Sri Lanka and Vietnam have neared or exceeded 20 percent. Singapore's consumer price gains have reached levels not seen since 1982. Inflation in Asia may reach the highest in a decade this year, the ADB said.

Inflationary Pressures

“We see signs of overheating emerging everywhere in Asia,'' Ifzal Ali, chief economist at the Asian Development Bank, said in Hong Kong. “Inflationary pressures will mount.''

The region's economies, almost twice as reliant on overseas sales as the rest of the world, are being dragged down by weakness in the U.S., Japan and Europe, the markets for 60 percent of Asian shipments.

“Although developing Asia is now exporting more to other emerging economies, this is unlikely to compensate fully for losses in the much larger, more established markets,'' the ADB said. “Market penetration of Asian suppliers in China's final goods markets is limited, and strong growth in China will provide only a limited cushion against the downturn'' in the U.S., Europe and Japan.

U.S. growth slowed to 2.5 percent in the fourth quarter from a year earlier and half of the economists in a Bloomberg News survey last month expect a recession this year.

U.S. Slowdown

The Federal Reserve has lowered its benchmark lending rate six times since September to cushion consumers and companies from the worst of a credit crunch that's made some of the world's biggest banks reluctant to lend to each other instant payday advance.

“The depth and duration of the U.S. slowdown will have knock-on effects elsewhere in the global economy,'' the report said. “Though the prospect of a recession in either the eurozone or Japan looks less likely than in the U.S., growth is expected to decelerate sharply there.''

The ADB reduced its forecasts for China and India, the world's two fastest-growing major economies. China's expansion will slow to 10 percent this year from 11.4 percent in 2007, while India's will ease to 8 percent in 2008 from 8.7 percent.

China's “2007 performance suggests strong momentum going into 2008, maintaining a risk of overheating in some sectors and inflation becoming more entrenched,'' the ADB said. “Net exports will be hit by a combination of weaker external demand, domestic policies to restrict some exports, currency appreciation, and rising local costs for labor and land.''

Higher Interest Rates

The People's Bank of China will probably raise interest rates and order lenders to set aside more deposits as reserves this year, the report said. The central bank is also expected to allow the yuan to gain at a faster pace against the U.S. dollar.

China's government will prevent overheating, control inflation and at the same time “avoid an economic slowdown'' in 2008, the State Council said.

The Reserve Bank of India is likely to hold off any interest-rate reductions until after the country's elections, the ADB said. The government faces elections before May 2009.

“The growth outcomes in the economy over the next two years will depend in part on the timing and scope for relaxing the present tight monetary policy,'' the report said.

The Asian Development Bank predicted that the region's expansion will quicken to 7.8 percent in 2009. While Asia's growth is still “solid'' amid an “unsteady'' global economy, it will depend on how domestic challenges are met, the ADB said.

“Developing Asia will not be immune to the global economic slowdown, nor will it be hostage to it,'' the bank said. “Once Asia has passed through the gathering storm of rising commodity prices and inflation, its growth prospects are likely to depend much more on how successfully countries manage their economies and overcome domestic constraints to growth.''

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