samchain/econo-pairs-v1 huggingface dataset:
Zeti Akhtar Aziz: Role of central banks in emerging economies Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Svein Gjedrem Colloquium, Oslo, 18 November 2010. *  *  *  Introduction Central banks continue to be challenged with changing demands as the environment before us is rapidly being transformed. These fundamental and pronounced changes have prompted calls for a review of the role of central banks in the financial system and in the economy. Frequently, such calls have been precipitated during a financial crisis, as was the case during the Asian financial crisis and more recently during this current global financial crisis. However, such institutional reforms undertaken in periods of exceptional conditions risks influencing the nature and direction of the reforms. While the reforms following a crisis may address the immediate term demands, of equal importance is the medium and the longer term implications of the reforms. Perhaps, an important lesson for central banks is that such reinvention and modernisation should be undertaken during the good times so that we will not be subjected to such changes during the worst of times. In essence, in such a dynamic environment, central banks need to continue to adjust and evolve to remain relevant and, thus, useful. It is my great honour to be invited to speak at the Norges Bank Colloquium held in honour of Governor Svein Gjedrem.

While several emerging economies have successfully relied on macro prudential measures to contain the formation of such asset bubbles, the foreign exchange market is not like any other market. With a daily transaction amounting to USD4 trillion, it is the most liquid and dynamic market in the world. The role of sentiment and expectations has resulted in a market that is frequently prone to excessive movements and overshooting. As highly open economies, disruptions and disequilibrium in the foreign exchange market have far reaching consequences in the real economy. Intervention operations to maintain orderly market conditions reinforced by sterilisation operations have aimed at ensuring liquidity in the market and at ensuring that the market conditions reflect the underlying economic fundamentals. Similar to the presence in other financial markets, this is to ensure the sustainability of the efficient functioning of the market. Central banks and crisis containment and management The world going forward is likely to continue to be affected by financial crisis. History has shown that there have been more than a hundred distinct banking crises in this recent two decades. The prospect of surviving such a crisis is not only about building resilience but also having the capacity to manage it. Central banks have a critical role in crisis containment and management, in particular, to provide liquidity, to restore the efficient functioning of financial markets, to lead resolution programmes and to restore confidence to the financial system.
Few are those who can define it and fewer still those who can measure it. Yet it has entered the popular lexicon and with good reason: the one thing we do know is that productivity is crucial to our pay and living standards over the longer run. Productivity is what pays for pay rises. And productivity is what puts the life into living standards. History, distant and recent, makes this only too clear. It is no coincidence that productivity, pay and living standards have moved in lock-step over the past millennium – flat-lining for the first three-quarters before sky-rocketing in the final quarter - as each new industrial revolution has dawned (Chart 1). Pay and living standards have increased over fifteen-fold since 1750. Productivity explains why. More recent experience has been more painful. Since 2008, productivity in the UK has essentially flat-lined. This is almost unprecedented in the modern era, a “lost decade” and counting. And it has been mirrored, as in the past, in a lost decade for pay too (Chart 2). Inflation-adjusted pay has stood still since the crisis, something also almost unprecedented in the modern era. 1  This prolonged pause has become known as the productivity problem. In the UK, the problem is a big one by any historical standard. And it is cold comfort that the UK shares this problem with much of the Western World and a decent chunk of the emerging market world.

On the other hand, the need of private businesses to carry out new investments has been low, against the backdrop of a moderate demand for goods and services and the existence of spare capacities in production. Fiscal policy has been stimulating during 2011. For the first ten-month period of the year, budget deficit posted ALL 30.9 billion or about 33.0% higher than a year earlier. The performance of budget deficit has been determined by the sluggish increase in expenditures and revenues by an annualized rate of 3.9% and 1.4%, respectively. The stimulating fiscal  BIS central bankers’ speeches  1  policy has been winding down steadily following the first quarter of the year, as also shown by the decelerated increase in public spending and budget deficit. This fiscal stance has contributed to maintaining the level of public debt under control. The Bank of Albania assesses the latter as one of the most essential indicators of macroeconomic stability at home. In this context, we encourage fiscal authorities to take appropriate measures, in order to ensure long-term sustainability of public debt. Foreign demand has supported the Albanian economic growth, notwithstanding the concerns surrounding the global economy and especially our trading partners. Albanian exports continue to grow, albeit at decelerated paces compared with the previous year. Exports grew 27.3% in the third quarter of the year, while imports grew 8.6% over the same period. Trade deficit increased 6.8% in the first nine-month period of the year.
I am pleased to announce today three initiatives aimed at further improving efficiency and liquidity in the Singapore dollar corporate debt market. 40. First, MAS will provide swap liquidity to primary dealer banks handling Singapore dollar debt issuance for foreign corporates. These offshore entities usually have no need for the Singapore dollar funds raised and mostly swap them into a foreign currency, usually US dollars. Although the pricing mechanism in the foreign exchange and cross currency swap market is efficient, swap markets have a tendency towards one-way flow because of Singapore’s excess savings over investments. This can lead to uncertainty in the pricing process of the bond issuance. We will therefore support swap transactions at marketdetermined prices, which will ultimately enable swap market liquidity to build in the longer tenors. 41. Second, MAS will partner the industry to create a Singapore dollar corporate debt securities lending platform, from which key players will be able to borrow securities for market making. By providing greater assurance that banks will be able to deliver any given security, this platform will reduce the risk of market makers being squeezed in the event they are unable to short-cover the bonds they have sold. Improved market liquidity will mean that asset managers can be more certain of their ability to enter and exit their positions with minimal price slippage. 42. Third, MAS has initiated a price discovery platform where market participants will contribute end-of-day prices for a universe of Singapore dollar corporate bonds.

Fiscal consolidation is expected to shave off a cumulative 2–2.5% points from GDP growth in the US, UK, and the Eurozone over the next three years. 11. Second, deleveraging by US households. Since the bursting of the credit bubble in 2008, US household debt has declined by 5% in absolute terms and 15% as a percentage of disposable incomes. More than two-thirds of the reduction in debt stock was due to default of mortgage and other consumer debt. It is hard to tell what is a sustainable level of household debt, but most estimates suggest that US households are just about a third to halfway through the deleveraging process. This means probably another 3–5 years of sub-par household consumption growth in the US. 12. Third, deleveraging by Eurozone banks. There are two factors at work here. One, the quality of Eurozone bank assets has come under pressure. Two, Eurozone banks are required to improve their capital adequacy positions so as to buffer against shocks. In particular, European banks are required to achieve a minimum core Tier 1 capital ratio of 9% by June this year. To the extent that banks cannot achieve the target capital ratios through retained earnings and capital raising, they will have to reduce their balance sheets. They can do this by selling assets or reducing lending. Both will have a dampening effect on economic activity. Given the global footprint of many Eurozone banks, the effects will be felt not just in Europe but elsewhere in the world.
Arizona and California) have adopted a less prudent approach to the management of their public finances than others. BIS Review 51/2010  3  4  BIS Review 51/2010  There is no doubt that fiscal policies have been put on a path that is not sustainable. Indeed, as simulations for the euro area show, without a very ambitious fiscal adjustment effort, the debt ratio is projected to continue rising in the next decades. With an annual structural deficit reduction of only 0.5% of GDP, it will take the euro area 20 years or more to return to the pre-crisis debt-to-GDP level. Substantially stronger consolidation efforts are warranted to bring the debt ratio down to a more prudent level of below 60% of GDP and to prepare for the rising budgetary costs of the ageing population. BIS Review 51/2010  5  The challenges are particularly large for countries with relatively high government deficit and debt levels, as well as a rapidly ageing society, and even more so for those that face relatively high interest rates and low potential growth. Outside the euro area, bringing the public debt ratio back to safer regions appears even harder for the United Kingdom, the United States and Japan. Given their high budget deficits and the high and rising debt levels, they must undertake very strong consolidation efforts to manage a reversal of the rising trend in public debt ratios. Growing fiscal imbalances, if not promptly corrected, are a cause of concern for several reasons.

From the very beginning, we have been aware of the fact that keeping our non-standard measures in place for longer than necessary would entail the danger of creating harmful distortions. Therefore, we designed the measures with exit considerations in mind. In view of the improvements in financial market conditions seen since last spring, we have started to gradually phase out some of them. More specifically, we have stopped providing liquidity in foreign currencies, and we have stopped operations involving maturities longer than three months. Also, we have decided to return to variable rate tenders in the regular three-month operations towards the end of this month. However, the Eurosystem will continue to provide liquidity support to the euro area banking system at very favourable conditions in its shorter-term refinancing operations (that mature after one week and after approximately one month). We have decided to do this for as long as necessary and at least until mid-October this year. The speed and path of the subsequent gradual phasing-out of the non-standard measures will depend on economic and financial market developments. The remaining measures are not many. They include, inter alia, the tender procedures to be applied in the main refinancing operations and the operations with a duration of one maintenance period, approximately one month (which could be returned to variable rate tenders). All our actions will remain fully in line with the objective of maintaining price stability over the medium term. We do not know today what normality will look like after the crisis.
Annual headline Consumer Price Index (CPI) inflation remains below 3%, although it has sped up in recent months, reaching 2.7% in July. Core inflation, meanwhile, which excludes the more volatile prices in the consumer basket (ie. food and energy), remains below 2%. Both figures are in line with expectations. Globally, the US-China trade conflict has intensified which, together with the cyclical state of the US economy and its divergence from that of other developed economies, has led to a global appreciation of the dollar and a fall in commodity prices. All this has affected hardest the emerging economies that are perceived as the most vulnerable. For now, global growth projections have had limited changes. In Chile, the exchange rate has again acted as a cushion that has protected the local financial market. The Board of the CBC has continued to apply a clearly expansionary monetary policy, keeping the monetary policy interest rate (MPR) at 2.5% since May of last year. At yesterday’s monetary policy meeting we held the rate unchanged and announced that the evolution of macroeconomic conditions makes it less necessary to maintain the current monetary stimulus, so that if the current scenario continues, the rate should begin to fall in the coming months. This will allow both headline and core inflation to converge to the target during 2019.

All Saudi banks now provide a range of products that are compliant with Shari’a requirements and with financial engineering specifications of the highest levels under the supervision of well-reputed Shari’a committees and top class financial professionals. In the context of supporting such efforts, SAMA’s IOB has offered many programs, courses and symposia in the area of developing, marketing and supervising Shari’a compliant products. The number of bankers benefiting from those programs stood at 6,300 who participated in 374 programs during the last seven years. These endeavors have considerably helped in developing Islamic banking in Saudi Arabia without undermining compliance with Islamic Shari’a or the technical flexibility needed by an emerging and dynamic market. Dear Audience, It is very important to mention that the industry of Islamic financial services should be completely integrated into the global financial markets while maintaining at the same time its distinguished nature and unique services. The industry should also be subject to the same level of supervisory control as other financial institutions. Any breach of standards, practices or application by Islamic banks will not only be an obstacle to their services and products, but it will also serve as a hindrance to accepting their services and products by international financial markets. Consolidating a bank’s financial data with those of all its subsidiaries and branches is another principle that must be applicable to all banks, and such principle is necessary for ensuring consolidated and comprehensive supervision by the supervisory authorities in the bank’s home country.
These elements and the fact that MPR is within a range considered neutral, makes us believe that the deceleration of domestic demand will become more evident in the coming months. Nonetheless, this process will occur at a rate lower than what we expected a few months ago. A significant part of the impulse of private consumption relies on the strength of the labor market. The unemployment level is at its lowest level of the last 15 years, in spite of a deceleration in job creation. Outstanding is the quality of newly created jobs, with a greater share of wage earners. This type of employment, due to its stability, is more prone to generate consumption of durable goods and increases households’ borrowing capacity, thus feeding back into a rise in consumption. As expected, a low unemployment rate with few output gaps is consistent with greater wage pressures. Real wages have increased between 2 and 3% during several months, while growth of nominal wages has been close to 7%. Indicators of consumer confidence have maintained a positive trend in the last months, although they remain in a pessimistic zone. Investment in 2010 and 2011 was boosted by the acquisition of machinery and equipment. This has recently been changing, with a greater dynamism in Construction and Public Works. The increased importance of Construction is related to residential construction and infrastructure, the latter linked to Mining and Energy projects.

Overall, in recent weeks, market expectations have raised the projections of short-term inflation. In addition, in the short term, inflation is affected by supply shocks that can have significant effects. Developments in the international oil market do not help the outlook for domestic inflation. Recent geopolitical tensions in the Middle East, which, among other consequences, led to an embargo on Iranian exports, and a harsh winter in the Northern Hemisphere have made the actual and expected oil price to escalate. The Brent price has risen more than 15% during the current year, while projections taken from futures contracts have also risen and point to an average price for oil of near $ per barrel during 2012. The persistence of a high price always raises worldwide concern because of its implications on inflation and growth. Concerns regarding inflation deal with the direct impact of fuel and energy inflation, and also with the secondary effects that they cause, which could be accentuated in an environment with a narrow output gap. Final thoughts Before I end my presentation, I would like to share some thoughts on monetary policy. As mentioned at the beginning of this presentation, our task as economic policymakers is made more difficult in a more uncertain environment. We make our best decisions based on whatever information is available at the moment. Currently, decision making relies on certain elements that point to opposite directions. On one hand, the international scenario is very complex, even though when compared to a few months back, the tensions seem somewhat smaller.
According to preliminary national accounts figures, mainland GDP grew by 2.2% from 2009 to 2010. Norges Bank’s regional network contacts expect solid growth to continue in the coming quarters. Unemployment is low. There are prospects of  BIS central bankers’ speeches  1  fairly strong growth in the Norwegian economy ahead, driven by solid income growth and an increasing population. Chart: Population growth In 2010, the population grew by 1.3 per cent. With the exception of 2008, this is the highest rate of population growth since 1920. A high birth rate has contributed, but strong population growth primarily reflects high inward migration. This is boosting demand for goods and services, including housing. Nonetheless, it is likely that a high proportion of labour immigration will enable the economy to grow faster without fuelling price and wage pressures, even though bottlenecks may arise in some areas. Chart: Consumer prices 2010/11 The rise in consumer prices slowed through 2010, and in recent months inflation has been fairly low. Inflation has varied from month to month as a result of wide fluctuations in electricity prices. Overall CPI inflation rose by 2.5 per cent in 2010. If we exclude fluctuations in energy prices, the rise in prices has been low. In 2010, CPIXE inflation was 1.7 per cent. Chart: Interest rate forecasts Norges Bank raised its key policy rate to 2 per cent in May 2010. Through 2010 the Bank’s interest rate forecast was adjusted down, and further increases were deferred.

Chairperson, it is now my pleasure to invite the Secretary to the Treasury who is also the Chairman of the FSDP Steering Committee to give us a few remarks before we call upon the Guest of Honour, to give us his keynote address and to officially open this forum. BIS Review 131/2009  3
However, the second half of the twentieth century saw many central banks also taking on the responsibility for statute-based micro prudential supervision. In many parts of the world banking laws were passed for the first time and the central bank often became the bank supervisor. In this process the distinction between the micro- and macro- perspectives became blurred. What has changed in the past ten to fifteen years is that central banks have started to give much more explicit emphasis than in the past on their macro prudential responsibilities and have distinguished it more clearly from the micro-supervision perspective. This renewed emphasis has several different sources. One of them was undoubtedly the financial crises that hit Asia in 1997. This experience showed that even if the individual banks in a financial system appear to be sound, the system itself can still be overwhelmed by financial shocks. For example, the system can be exposed to a common risk that isn’t obvious from looking at each bank individually. In the Asian crisis countries the exposures of banks to foreign exchange risks didn’t show up on bank balance sheets. The risks were instead in the balance sheets of their major borrowers, who had borrowed heavily in foreign currencies even though they had domestic currency cash-flows. And this also points to another feature of macro prudential concern – it cannot stop at the traditional boundary of the banking system, but must look at the risks in the nonbank financial sector and at the structure of household and corporate balance sheets.

Tharman Shanmugaratnam: Update on the Singaporean economy Statement by Mr Tharman Shanmugaratnam, Managing Director of the Monetary Authority of Singapore, delivered at the MAS Annual Report 2000/2001 media conference in Singapore on 12 July 2001. * 1  *  *  Introduction  MAS has had an eventful year, shaping monetary policy in a challenging and uncertain environment and continuing to liberalise and enhance standards in the financial sector. 2  Monetary policy  In January this year, MAS decided to maintain the existing exchange rate policy stance of allowing a modest appreciation of the trade-weighted Singapore dollar within an unchanged policy band. This policy was aimed at capping medium-term inflationary pressures, while continuing to be supportive of economic activity as growth came off its cyclical high and moderated to a slower pace. Economic activity slowed much more in the first half of 2001 than was expected, causing market sentiment to shift against the Singapore dollar. Strong demand for US dollars to fund merger and acquisition activities by domestic corporates, and a strengthening of the US dollar against the major currencies, exerted further downward pressure on the Singapore dollar. The $ weakened over the period, from the top of the policy band at the start of the year to the lower half of the band at end June. This trend was consistent with the change in underlying economic and market conditions.