Indeed, this crisis has shown that “decoupling” is a God that failed. If financial stability anywhere in the world is jeopardized, our financial stability will become vulnerable too. India’s approach to financial stability In contrast to the minimalist formula of “single objective, single instrument”, the conduct of monetary policy by the Reserve Bank has been guided by multiple objectives and multiple instruments.
One is that because of relatively tight mortgage underwriting in the 2010s, the credit scores of mortgage borrowers today are generally higher than they were prior to that last housing correction. Also, the experience of the last correction taught us that most borrowers only default when they experience a negative shock to their incomes in addition to being underwater on their mortgage.