Don’t fix what isn’t broken.
Singaporeans have seen a number of new monetary policies in recent years, but it is likely that they aren’t going to see any radical changes as the government refuses to budge.
Monetary Authority of Singapore (MAS) chief Ravi Menon cautioned against putting too much stock into innovative policy measures that are being done in response to today’s “unusual conditions” in a speech given at the Asian Monetary Policy Forum on Saturday, May 24.
“I suspect that when the dust has settled and more normal conditions return, monetary policy regimes will not look drastically different from pre-Crisis days.” said Menon. “In essence, monetary policy will remain largely focused on price and output stability – as it should be.”
This was said after explaining how new macroprudential measures have helped temper Singapore’s recent property crisis.
“Financial vulnerabilities are not evenly spread across the economy. They tend to be concentrated in specific sectors and segments, such as in real estate. So, even when monetary policy has configured overall liquidity and risk-taking settings appropriately, specific pockets of financial market vulnerabilities, e.g. a property bubble, could remain.” he noted.
Macro-prudential policies target these specific vulnerabilities by employing multi-dimensional tools and approaches to target financially susceptible sectors.
The results of macro-prudential policies “have not been bad”, but Menon warned against forgetting “the continued relevance of the traditional approach”.
“We do not need to reinvent macroeconomics. Nor do we need to discard most of what we know about monetary policy, built from decades of rigorous research and painful experience. Much of that knowledge remains relevant.” he stated. “In thinking about the so-called new normal, we should pay equal heed to what is new and what remains normal. No doubt, we need to update our paradigms to meet new realities. But we do not need to overhaul them.”
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