The International Monetary Fund (IMF) has issued warning on Thursday that Asian economies are in danger of overheating as more capital influx could lead to inflationary pressures that could bust the region's recent gains.

In a report by AAP, the IMF encouraged the regional economic managers to normalise monetary policies and increase currency rates flexibilities in order to arrest speculative funds flooding into their economies.

Anoop Singh, IMF director of Asia-Pacific, said that China and other economies in the region are running the risk of heading into a cycle of boom and bust as better economic indicators will attract more capital to the region, which the IMF said "could lead to overheating in some economies and increase their vulnerability to credit and asset price booms with the risk of subsequent abrupt reversals."

The IMF revised its growth forecast for Asia to 7.1 percent for 2010 and 2011, from projections of 6.9 percent and 7.0 percent last week, as it aired deep concerns that export-oriented Asian economies are susceptible to sluggish recovery in West countries thus urging the region's governments to check their over-reliance on overseas shipments and add up their domestic consumption.

The IMF called on Asian policymakers to institute safeguards against the emergence of imbalances in asset and housing markets brought by excess liquidity and the most effective way is to adopt flexible exchange rates as allowing the rates to appreciate could prevent short-term inflows.

It is also called the region's attention on the importance of implementing reforms that will encourage productivity and competitiveness on the service sector.

The IMF is reminding the region too that along with strong currencies, governments and specifically that in China will need to slash household precautionary savings and excessive corporate funds, with Mr Singh stressing that "It's very important that this package of measures is not viewed as based on one policy, which is the exchange rate."

The IMF has maintained that a stronger Yuan is essential not only for China but for the world economy too as it places more pressure on Beijing to revalue the currency which has been pegged at 6.8 to dollar since 2008, as critics scored the policy as affording undue advantage to Chinese manufacturers by making their exports way cheaper.