##economic situation may require a tight monetary policy, but the central bank may demur because such tightening may raise concerns about the stability of the banking system. some people argue though that potential conflicts between monetary policy and macroprudential policy are being exaggerated. in entrusting responsibility for macroprudential supervision, and more broadly for financial stability, to central banks, there are concerns also about how this responsibility, might impact the prized autonomy of central banks. this apprehension arises because macroprudential decisions entail a greater element of subjective judgement than do monetary policy decisions, and if that be the case, it opens up scope for interference from the outside. 36. my attempt as above has been only to give you a flavour of the many complex questions thrown up by this issue of central bank responsibility for asset price management, indeed more broadly for financial stability. the scope of this lecture does not permit a detailed assessment of the debate. but let me give you the reserve bank perspective on this. 37. the reserve bank has traditionally had a much broader mandate, including responsibility for some development functions, than is typical of advanced economy central banks. our experience in regard to simultaneously managing both monetary policy and macroprudential policy has been positive, indeed synergistic. asset price trends are one of the many variables we take into account in monetary policy calibration. we have used conventional monetary policy instruments such as policy interest rates if demand pressures are across board. on the other hand, if demand pressures are confined to specific sectors, we have found it more efficient to use macroprudential instruments such as risk weights and provisioning norms so as to put sand in the wheels of credit flowing to those sectors. we have also used macroprudential instruments symmetrically – tightening in times of excess demand as, for example, in the years before the crisis, and easing in times of slackening demand, for example, as part of the crisis response. 38. even as macroprudential policies have become the talk of the town post - crisis, deploying them requires careful judgement. in order to make a judgement, a central bank has to ascertain if the asset price build up is driven by “ excessive leverage ” and if the price build up is across board or confined to specific sectors. by far the most important thing to remember in deploying macroprudential policies is that, with the benefit of hindsight, all conservative policies look safe. but excessive conservatism in

stock average has declined to ¥15, 000 by mid - november, with the additional impact from the precipitous decline in hong kong stock prices in late october. it has since shown wide fluctuations between ¥15, 000 and ¥17, 000. in the foreign exchange market, the yen had moved at around ¥119 - 123 to the u. s. dollar until october. however, the yen began to depreciate in november and temporarily declined to ¥131 - 132 in mid - december. it then recovered and has recently moved at around ¥127 - 130. meanwhile, the yen started to depreciate against the deutsche mark after having peaked at around ¥62 in mid - august, and has recently moved at around ¥71 - 74.