SINGAPORE (MNI) - Asia is at greater risk of asset bubbles forming and spikes in inflation compared with slower growing economies like the US and Europe, and central banks in the region have to be wary of such risks, World Bank President Robert Zoellick said Wednesday.

In dealing with possible asset bubbles and runaway inflation, central banks in the region need to look beyond just raising interest rates to constrain the amount of liquidity that has been injected into financial systems in response to the crisis, Zoellick said.

Asset bubbles, "if they become a serious issue could undermine confidence going forward," Zoellick told journalists from the Foreign Correspondents Association at the sidelines of the APEC summit in Singapore.

"In the U.S. and Europe, because things are in relatively weak conditions, I don't see likely inflationary effects at this time. In East Asia if you start to get a strong rebound in growth and a lot of liquidity there is the question of whether one could start to face asset bubbles in particular markets."

"I see this not as an immediate danger but something that one needs to anticipate the risks."

Zoellick said that while he's relatively comfortable of growth prospects for the global economy in 2009, there were some risks heading into 2010, namely that of second and third order wave effects like higher consumer loan delinquency and rising unemployment, especially in the U.S.

But policy responses shouldn't only be through higher interest rates, Zoellick warned.

"The solutions for asset bubbles are not so easy to determine," he said.

"One of the areas that banking supervisors and central bankers may need to examine when you face asset bubbles is are there tools in the banking and supervisory systems to constrain some of the credit?"

"I do think the Australian action, for that market, reflects a concern about trying to head off the topic (of asset bubbles)."

The Reserve Bank of Australia became the first major central bank among developed economies to raise interest rates last month and last week it carried out its second straight 25 basis-point rate hike, increasing the benchmark cash rate to 3.50%.

Zoellick was also queried on his response to recent comments by the World Bank's chief economist Justin Yifu Lin who said this week China shouldn't be forced to let its currency appreciate as a way to rebalance the world economy.

Lin made his comments at a lecture in Hong Kong according to U.S. press reports, but said the view reflected his own rather than the Bank's official position.

Zoellick was however less direct, saying, "What I think he was seeking to emphasize was... that you have a structural imbalance. To really get at the currency issue and the imbalance and the savings issue you have to address some of the structural problems."

The World Bank President noted there was pressure on China to allow its currency to appreciate, but "We'll just have to wait and see what they do."

In the broader regional economic picture however, Zoellick said he believed China played a decisive role in helping Asia pull out of the global slowdown.

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