Ravi Menon: Everything, everywhere, all at once - securing monetary and financial stability in an interconnected world

Opening remarks by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the 10th Asian Monetary Policy Forum, Singapore, 26 May 2023. 

The views expressed in this speech are those of the speaker and not the view of the BIS.

Professor Bernard Yeung, National University of Singapore Business School, and President of the Asian Bureau of Finance and Economic Research (ABFER)

Professor Steven J Davis, University of Chicago, Hoover Institution, and EXCO Member of ABFER

Distinguished speakers and guests, ladies and gentlemen

Getting in all the cracks or targeting the cracks?

At the inaugural Asian Monetary Policy Forum in 2014, I spoke about the challenge of securing both price stability and financial stability. Now, nearly ten years later, we know a lot more about this issue,yet there is still much we do not know.  Let me take stock of where we are.

To achieve both the objectives of price stability and financial stability, I described in 2014 three possible approaches for monetary policy. 

The first approach is to keep monetary policy focused on price stability and leave financial stability to microprudential regulation and supervision. Most advanced economies have stuck to this approach in the last ten years, with adjustments to counter-cyclical capital buffers as the sole macroprudential policy innovation.

The second approach is to include financial stability in addition to price stability as an objective of monetary policy. This is motivated by what Jeremy Stein had characterised as the unique ability of monetary policy to "get in all of the cracks". No central bank has formally adopted this approach though it would appear that some central banks do at least indirectly consider financial stability implications in their monetary policy decisions.