However, discretion needs to be accompanied with political willingness to act when required – this has to be demonstrated over time and supported by a matured, effective governance and accountability framework. In Malaysia, we ensured that the key administrators in the Government fully understand the objective of the macroprudential measures to keep the household indebtedness and the housing speculation in check, prior to the implementation. Fourth, pre-emptive implementation is key to create space for measures to be implemented progressively and incrementally. This is important to ensure orderly adjustments; avoid “overshooting” or over-reaction among affected parties; and minimise unintended deleveraging. Timely calibration, and where required, uplifting or introduction of other measures are critical in this aspect. The effectiveness of macroprudential measures are inherently difficult to assess. It is therefore extremely important that macroprudential measures are well-supported by effective surveillance systems and capability. This provides the agility for authorities to respond to market reactions which can often be unpredictable. Very often, there will be a need to extend or recalibrate the measures to ensure that they remain effective. For example, following the implementation of the LTV ratio limit of 70% on the third and above outstanding housing loan per individual in November 2010, we observed an increasing growth of housing loans undertaken by non-individual (registered business) borrowers, i.e. they used their business entities to buy properties. This was clearly a circumvention of the measures, leading to the introduction of a LTV ratio limit of 60% on housing loans by nonindividuals in December 2011.
The Central Bank, meanwhile, has adopted many measures aimed at providing liquidity to the markets and stimulating the flow of credit to the productive sector, in order to avoid a more severe disinflationary cycle and prevent risks to financial stability, which could raise the economic and social cost of the ongoing shock. Thus, following the June Monetary Policy Meeting, interest rates at different terms posted an important decrease, in line with the intensification of the monetary stimulus through the purchase of assets and the announcement of phase 2 of the Financing Facility Conditional on Increased Lending (FCIC). The decline in long-term interest rates was reversed during the final phase of the discussion of the withdrawal of part of the pension savings, consistent with the fall in the prices of the assets in which they are invested. However, after a set of measures were announced by the Central Bank and the regulators, and the Pension Funds Administrators (AFPs) implemented 3  a portfolio management strategy that mitigated the impacts on local markets, volatility has been reduced and interest rates have fallen again. Stock market valuations, meanwhile, have followed a trajectory below their foreign counterparts (Figure 11). Policy measures designed to confront the current crisis must be able to recognize its distinctive characteristics.