21 Therefore the focus of MAS’ monetary policy, as before, is on Core Inflation. Just as we were not unduly alarmed when All-Items inflation was running at 5%, we should not be complacent now just because All-Items inflation is running below 2%. Our focus remains on Core Inflation, which has persisted at 2–3% for the last few years. Monetary policy has therefore been steady and consistent during this period – a gradual and modest appreciation path for $ since April 2010. This was reaffirmed most recently in April 2014. This policy stance will ensure that Core Inflation stays within 2–3% this year. 22 We expect Core Inflation to be higher than historical average of 2%, during period of economic restructuring next few years. The aim of our monetary policy is to keep core  2  BIS central bankers’ speeches  inflation expectations anchored at around 2.5%. Inflation may exceed this level from time to time but we aim to ensure that it does not do so on sustained basis. Property cooling measures working but too early to ease 23 Next, I will touch on to the property market. 24 The MAS has also been focused on asset price inflation in recent years, especially in the property market. The MAS, working with other government agencies, has introduced several rounds of measures to cool an overheated property market. 25 There were three motivations behind MAS policy measures. •  Anchor inflation expectations. High and rising asset prices could fuel expectations of still higher general prices.
Year-on-year growth of household debt has moderated from nearly 13% in the third quarter of 2011 to 5.5% in the first quarter of 2014. Second, the risk profile of new housing loan borrowers has improved. Almost all new housing loans granted since introduction of Total Debt Servicing Ratio, or TDSR, were within the 60% threshold. 27 But it is too early to ease property-related measures 28 The measures can be broadly categorised into structural and cyclical measures. •  Structural measures include the TDSR and caps on loan tenures. They aim to ensure that households do not take on financial obligations beyond their repayment capacity. Structural measures are therefore meant for the long-term. •  Cyclical measures include MAS’ LTV limits and MOF’s stamp duties. They are designed to prevent households from over-extending themselves in purchasing property during periods of rapid price increases or elevated prices. Cyclical measures can be recalibrated according to market conditions. 29 It is too early to unwind cyclical measures as the risk factors have not changed. BIS central bankers’ speeches  3  •  Property prices remain at elevated levels. Prices went up 60% over last four years but have declined by just 3.3% over the last three quarters. •  Global interest rates are still at historical lows. Relaxing property measures in the current easy liquidity environment may set off another spiral of price increases. •  The level of debt among highly leveraged households remains high.