rakesh mohan : monetary policy and exchange rate frameworks - the indian experience presentation by mr rakesh mohan, deputy governor of the reserve bank of india, at the second high level seminar on asian financial integration organised by the international monetary fund and monetary authority of singapore, singapore, 25 may 2006. the assistance of michael patra, himanshu joshi, rajib das and partha ray in preparation of the address is gratefully acknowledged. the references for this speech can be found on the reserve bank of india ’ s website www. rbi. org. in. * * * i would like to congratulate the international monetary fund and monetary authority of singapore for holding this second high level seminar on asian financial integration. this forum provides a good opportunity for all of us to exchange notes, ideas and views on the continuously evolving texture of the international financial architecture, particular as it affects asia and as asian financial growth itself impacts the rest of the world. the international financial landscape today is clearly much more complex than it has been in previous decades. in each of our countries monetary policy making has become a delicate balancing act between the imperatives of domestic economic, financial and monetary concerns and the evolving international situation that we have to observe closely on a real time basis and to take it as a given. the rapid changes that technological change, financial innovation and globalisation have brought to financial markets are also forces at work that have to be taken account of. we are all living through interesting times, but our job as central bankers is perhaps to make the world less interesting through the implementation of policies that ensure monetary and financial stability! indian economic reforms that have been in process now for a decade and a half seem to have propelled us to a higher growth path of 8 per cent plus gdp growth. our challenge in monetary policy making now is to ensure that such a growth path can be preserved, or further accelerated, while we provide a macro - economic environment that is characterised by monetary, price and financial stability. as i will document further, among the changes that we have gone through in the last decade and a half, a key transformation is the increasing openness of the indian economy. within that, our economic relationships with the rest of asia are also intensifying through sustained expansion in trade and hence in financial relationships as well. given the emerging economic demographics in the world, and the shifting economic weight towards asia, we are very conscious of the need for increasing integration in asia and how our own role will evolve in the coming

the inadequate capital requirements that basel i placed on banks in respect of their securitisation activities. on 1 january 2008, all singapore - incorporated banks have adopted basel ii, a more risksensitive capital framework. the greater focus on enhancing internal risk management required under this new framework is especially timely given the volatile and uncertain environment. 14. second, mas has been working on improving liquidity risk management of banks before the current crisis. events in recent months reinforced the critical importance of liquidity management. to enable banks to better manage their liquidity risk, mas has put in place a revised minimum liquid assets framework. banks can apply to adopt a more risk - sensitive methodology for determining their regulatory liquidity reserves, which takes into account their risk management capability. 15. third, at the macro - level, to enhance liquidity management in the system, we will be making some changes to the mas standing facility that has been in place since june 2006. 16. the standing facility allows banks to place excess funds with or borrow from mas against singapore government securities collateral. this has helped to moderate intra - day volatility in interest rates as banks can avoid any undue scramble to square large, and potentially destabilising, positions in the market. the standing facility is currently open to the 11 primary dealer banks which are the most active banks in the singapore dollar money market. non - primary dealer banks could access the facility through the primary dealer banks. 17. while the existing arrangement has worked well, experience in other developed markets has also demonstrated that such a facility is particularly useful in times of unusual market volatility, as this enhances confidence that liquidity needs in the banking system will be met. 18. hence, to enhance the robustness of the system, mas will widen participation in the standing facility to meps + participating banks, subject to necessary documentation. the psa / isma global master repurchase agreement continues to be a requirement for banks to access the borrowing facility which will remain collateralised against singapore government securities. we will provide more details on this to the banks over the next few weeks. corporate governance, market conduct 19. apart from dealing with issues relating to the safety and soundness of banks, and the stability of financial system, mas has also been working on improving the responsiveness of our rules, as well as on improving corporate governance and market conduct. 20. mas is proposing amendments to the securities and futures act and the financial advisers act. the amendments aim to