Bangkok--8 Oct--Moody's During the first half of the year, emerging inflation was the number one concern for policymakers in the Asia-Pacific region. Soaring food and energy costs have been eroding real incomes, while second-round inflation effects threaten to undermine the hard-won advances in living standards that Asian countries have attained over the past decade. Central banks came under intense criticism from various quarters for allowing the "inflationary genie out of the bottle" and acting behind the curve. However, intensifying financial market turmoil and dislocation of credit markets, along with growing fears of a global slowdown, have dramatically changed the direction of regional monetary policy. Central banks are now focusing on an imminent economic slowdown. In perhaps the sharpest about-face in Australian monetary policy history, the Reserve Bank of Australia slashed its benchmark interest rate by a full percentage point this week. Such aggressive easing in monetary policy stands in stark contrast to the hawkish bias which prompted the central bank to increase interest rates twice earlier in the year. In a similar about-face, the Reserve Bank of India cut the cash reserve ratio by 50 basis points at an out-of-session meeting on Monday. The surprise announcement came less than three months since the last adjustment—a 50-basis point hike—and underscored the urgency of regional central bank actions amid the turbulence. The central bank of the Philippines, Bangko Sentral ng Pilipinas, has also obviously shifted focus from inflation to growth by leaving interest rates on hold earlier this week. Even though inflation remains near a 16-year high, the central bank shelved its tightening agenda after raising its key policy interest rates by a cumulative 100 basis points at its previous three meetings. This dramatic change in focus comes just a week after government authorities revised downward their 2008 growth forecasts for the third time this year, to 4.4% to 4.9%. In a similar vein, confronted by decade-high inflation but signs of a sharply slowing economy, the Bank of Japan left its target overnight cash rate unchanged at 0.5%, having abandoned its tightening agenda earlier in the year. A growing chorus of analysts—Moody's Economy.com included—believe that the Japanese economy is already in recession. Its GDP contracted sharply in the second quarter, and a successive negative result is expected for the third quarter. The Bank of Korea and Bank of Thailand are expected to leave rates on hold when they meet this week, as inflation remains elevated in both countries. However, both central banks are under increasing pressure to relax monetary policy before the end of the year, given the deteriorating outlook for the global economy and deepening financial crisis and the likely toll this will exact on their domestic economies. Also, with growing speculation regarding a coordinated global central bank response to the credit market mayhem, central banks in the region not already actively easing monetary policy may be forced through compulsion, if not through necessity, to cut interest rates in an attempt to arrest the intensifying turmoil. This commentary is produced by Moody's Economy.com, Inc., a subsidiary of Moody's Corporation engaged in economic research and analysis. Moody's Economy.com's commentary is independent and does not reflect the opinions of Moody's Investors Service, Inc., the credit ratings agency which is also a subsidiary of Moody's