BIS Review 143/2009  5  Figure 13: Policy Rates in Emerging Figure 14: Change in Policy Rates Markets * between September 2008 and October 2009 in Emerging Markets* September 2008-October 2009 (Basis Points) 20  0  Emerging Markets Turkey  -200  17  -400  14  -600  11  -800  8  -1000  * As of 19 October 2009. Source: Bloomberg, CBRT calculations. Source: Bloomberg, CBRT. Rus sia  Hung ary  Romania  Indon esi a  Mexico Thailand Poland  India  * As of 19 October 2009. Brazil  Turkey Chi le Columbia  Peru South Africa  -1200  0709  0109  0708  0108  0707  0107  0706  0106  5  Data releases on inflation and economic activity since the inception of the rate cutting cycle have vindicated these preemptive monetary policy decisions, and thereby strengthened the impact of policy decisions on expectations, gradually bringing government bond yields to historically low levels on the back of improvement in risk premiums (Figure 15). CBRT’s effective communication policy and management of expectations, along with market perceptions indicating that the Medium Term Program (MTP) released in September is consistent and realistic, played a key role in bringing down government bond yields. This downward trend particularly accelerated after providing a medium-term policy perspective in the July Inflation Report.
This is the main reason why MAS introduced the Total Debt Servicing Ratio (TDSR) framework. During our inspections, we picked up some worrying practices. •  4  Most of them are in property loans –  A couple with combined household income of $ was able to obtain a new housing loan of $ Their monthly installments on this new loan and their existing loan obligations came to more than 90% of their combined monthly income. –  The bank’s decision to approve the loan was based solely on fact that couple had savings deposit of $ This is not prudent. BIS central bankers’ speeches  •  •  We picked up similar instances for car loans –  Some applicants of car loans borrowed close to 100% of the value of car, with little or no down payment, for what is essentially a depreciating asset. –  This is also not prudent. We also found cases of excessive borrowing through credit cards –  A concerned mother called MAS for assistance: her 24-year old son had been paying only the minimum sum on his credit card bills and steadily chalking up debts. –  She requested MAS to stop financial institutions from issuing credit cards to those who have not been making full payment on their credit card bills. Over last three years, MAS has introduced variety of measures to contain excessive borrowing against the backdrop of highly loose monetary conditions globally.