Policymakers must avoid overreaction: Swee Keat

SINGAPORE - When financial markets overreact, it is crucial that regulators and policymakers do not follow suit, said Finance Minister Heng Swee Keat on Friday.

"A very seasoned policymaker once said to me, that when markets panic we must stay calm, and when markets become over-exuberant we must lean against it. So policymakers and regulators must separate the noise from the trend, and focus on maintaining stability and facilitating structural adjustments," said Mr Heng.

He added that Asia's "structural growth story" remains intact, despite recent market volatility and other transitional pains - including the adjustments to lower commodity prices, and the slowdown of growth in regional economies.

Said Mr Heng: "The moderation in growth reflects ongoing efforts to rebalance towards domestic sources of demand. Notwithstanding transitional pains, the structural growth story in Asia remains intact."

He was speaking at an ASEAN+3 Macroeconomic Research Office (AMRO) event, held at the Monetary Authority of Singapore (MAS).

AMRO, a regional surveillance unit that promotes independent macroeconomic monitoring, has been accorded the status of an international organisation. It was initially established as a limited company in Singapore. This means it now has the same standing as other institutions such as the International Monetary Fund (IMF).

Therefore, AMRO has been granted functional privileges and immunities that will enable a wider scope of data to be obtained - giving a boost to its ability to assess financial developments and to formulate policy recommendations.

AMRO is headquartered in Singapore and is housed at the central bank on Shenton Way. It has close to 40 staff from ASEAN+3 countries, which comprise the 10 ASEAN member states, and China, Japan and South Korea.

Said Mr Heng: "As AMRO grows and develops its surveillance capabilities, it will establish an effective early warning mechanism for emerging risks in the region.

"Our vision is for AMRO to develop into an authoritative interpreter of economic and financial developments in the Asian region."

With cross-border capital flows and trade links having an increasingly large impact on domestic conditions - an issue brought to the fore by the volatility seen this year - Mr Heng emphasised that governments need a deeper understanding of the growing economic and financial interlinkages across countries.

He said that it is here that AMRO can make a substantial contribution to mapping out the financial interconnectedness among the ASEAN+3 economies, as well as between the region and the rest of the world.

This article was first published on Feb 21, 2016.
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