Cutting interest rates to manage economic slowdown, only to find that it worsens capital reversals, exchange rate depreciation, and potentially reignite financial imbalances that policymakers have tried so hard to tame. These are some amongst the many challenges to any policymaker, which brings me to my next point – the importance of policy pragmatism. The importance of policy pragmatism Our own experience suggests that in dealing with multifaceted challenges, a broad array of policy instruments is critical. The idea is that no single policy tool should be overburdened. The region’s experience theorises that despite great strides in achieving price stability and sustainable growth since the Asian Financial Crisis, an open economy with sizeable financial market invites volatile capital flows that adds layers of complexity in policy-making. We have expanded our policy toolkit to include micro and macroprudential as well as financial market stability measures. This additional arsenal of policy tools has helped to maintain the effectiveness of monetary policy and safeguard domestic financial and macro stability. But having a broad policy toolkit is not enough. It may be tempting for us to treat these challenges 2/5  BIS central bankers' speeches  as linear strings of events in order to cope with the complexity. But breaking the challenges into digestible fragments of their own and tackling them in isolation using our various policy tools seem a futile attempt. Given the closely interdependent and constantly evolving nature of the challenges, solving one part of them may amplify the risks in others.
With the right instruments and tools, and considerable agility, policy autonomy is not only attainable; it can be the perfect catalyst for powerful collaboration as we move forward. Let us collaborate rather than be restrained by collectivism. 5/5  BIS central bankers' speeches