This work is very important, but unfortunately will not mean that, as of now, there will never be any more crises. So what should we do to ensure that it takes as long as possible until the next crisis breaks out? To start with, it is important to develop the financial regulatory framework both in Sweden and abroad, so as to boost the resilience of the financial system. Work on this is currently in full swing, but it will take several years before we will be able to gain a clearer view of how such a new regulatory framework may look. However, regardless of how it may look, it will affect the conditions for monetary policy, one way or another. It is thus important for central banks to continually monitor and analyse changes in the financial regulatory system. The financial crisis has also emphasised the need to better incorporate the financial markets’ significance into the macroeconomic assessment that guides monetary policy. Future developments – the stable development of Sweden’s economy requires the repo rate to be raised The recovery of Sweden’s economy after the financial crisis has now made a lot of progress. Output has largely returned to the pre-crisis level, and unemployment is in retreat. Our assessment of developments is that the high growth rate in the economy will gradually decrease in the period ahead and will approach normal levels. Underlying inflation is increasing and will be close to target by the end of the forecast period (see Slide 10).
We experienced four consecutive quarters of sequential contraction with a cumulative output loss of 9% – our deepest recession since independence. Conversely, with the subsequent recovery in the global economy, Singapore’s GDP rose sharply and now exceeds the level before the crisis. Last year, the economy grew by an estimated 14.7%. 4. Over the course of the crisis in 2008/2009, MAS’ monetary policy responses were deliberately graduated, underpinned by the objective of promoting price stability in the medium term. We did not react to every single development in the economy or the financial markets as this would have introduced unnecessary volatility and uncertainty. Following the significant deterioration in external demand in late 2008, MAS eased policy in October 2008 and April 2009 to provide support to the domestic economy. In early 2010, taking into account the strong recovery path of the economy and rising domestic cost pressures amidst high rates of resource utilisation, MAS shifted to a modest and gradual appreciation of the $ policy band. Subsequently, MAS tightened policy further in October 2010 by increasing slightly the slope of the policy band. 5. Singapore’s financial system experienced some initial strains but otherwise has proven resilient during the crisis. Banks and insurers maintained robust capital and liquidity buffers, and balance sheets were relatively strong. Their prudent risk management allowed them to weather the crisis well. MAS has also remained vigilant through the crisis, with my colleagues working hard to ensure that our regulatory and supervisory efforts remain robust. Challenges ahead 6.