Ravi Menon: Securing price stability as Singapore restructures Speech by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the Asian Bureau of Financial and Economics Research (ABFER) Opening Gala Dinner, Singapore, 21 May 2013. *  *  *  Professor Bernard Yeung, Dean, NUS Business School, whose tireless efforts have brought to fruition the Asian Bureau of Financial and Economics Research, distinguished guests, ladies and gentlemen, good evening. Interesting times again Monetary policy has become interesting again. The Great Moderation, beginning in the mid-1980s and spanning two decades, marked the triumph of monetary policy over the scourge of inflation. The formula worked brilliantly – independent central banks, with clear mandates to pursue price stability, and doing so with consistency and credibility, ushered in an era of macroeconomic and financial stability supporting steady economic growth and rising prosperity. Then came 2008/2009 – unleashing a financial crisis of unmatched scale and impact, and a global recession deeper than any seen since the Great Depression. We are still living in the shadows of these two shocks, with the global economy stuck in a hesitant and uneven recovery and financial market stresses resurfacing from time to time. Monetary policy in the advanced economies has entered unchartered waters, in a valiant effort to support economic growth, which was being weighed down by deleveraging. In the emerging economies, central banks and governments have had to be equally nimble in their policy responses, as they grapple with the spillover effects of these unconventional monetary policies.

The government was thus concerned that households were over-extending themselves in the low-interest rate environment. If a sufficiently large number of borrowers ended up in distress, financial institutions would also come under stress, thereby posing risks for financial stability. Since neither monetary policy nor financial supervisory policy could directly address the property market, the government had to resort to macroprudential policies. However, unlike monetary policy which has a single instrument and a clear target, macroprudential policy requires a multi-dimensional approach. This is because there is no single instrument that has a stable and reliable relationship with financial stability or asset price stability. Each is influenced by a variety of factors. Macroprudential policy has thus relied on a range of policy instruments. In fact, many of these instruments are not at the disposal of MAS but involve other government agencies. The conduct of macroprudential policy has entailed a co-ordinated approach across MAS, the Ministry of Finance (MOF), and the Ministry of National Development (MND). MAS, MOF, and MND, worked in concert to implement several rounds of macroprudential measures to help cool the property market: •  MAS has progressively lowered the loan-to-value ratios on property loans and capped mortgage tenures at a maximum of 35 years. •  MOF has successively raised taxes on property transactions, in the form of the Sellers’ Stamp Duty and the Additional Buyer’s Stamp Duty. •  MND has ramped up land sales for residential property developments. Property prices finally appear to be stabilising.