Headwinds in the aftermath of the financial crisis are still in evidence, particularly the diminished availability and tougher terms for residential mortgage credit. How fast the normalization process will proceed depends mainly on two factors: how the economy evolves and how financial market conditions respond to movements in the federal funds rate. If financial market conditions do not tighten much in response to higher short-term interest rates, we might have to move more quickly. After all, the point of raising short-term interest rates is to exert some restraint on financial market conditions. In contrast, if financial conditions tighten unduly, then this will likely cause us to go much more slowly or even to pause for a while. At the end of the day, we will move short-term interest rates to generate the set of financial market conditions that we deem is most consistent with our employment and inflation objectives. How high will short-term rates ultimately need to go? I think this issue is very difficult to judge for a number of reasons. First, it depends on how financial market conditions evolve in response to our monetary policy adjustments. Second, it depends on other factors, such as real potential GDP growth, which, in turn, depends on the growth rates of the labor force and of productivity. My current thinking is that the long-run nominal federal funds rate consistent with 2 percent inflation is somewhat lower than in the past. My point estimate is 3½ percent, but I wouldn’t bet the farm on this.
•  A McKinsey study estimates that Myanmar will need to invest $ billion in infrastructure up to 2030 to achieve an annual growth of 8%. •  Foreign capital, intermediated through a well-developed banking industry and wellfunctioning capital markets, is a necessary complement to meeting this infrastructure need. And it is not only financing that foreign participation brings, but critical expertise in structuring projects and managing risks. Most important, foreign financial institutions promote competition and innovation, providing the impetus for local institutions to upgrade their capabilities. This has been Singapore’s experience. •  We had protected our local banks from foreign competition in retail banking for many years. •  In 1999, MAS embarked on a programme to liberalise access to Singapore’s domestic banking market. •  The aim was to strengthen our local banks through competition and provide Singaporeans with quality banking services. The strategy worked. •  The local banks built up strong management teams and made significant infrastructural investments to expand their range of business activities and enhance operational effectiveness. •  They are now stronger and more dynamic, with much improved systems of management, risk controls, technology, and expertise. •  Liberalisation provided the spur for our local banks to raise their game and compete with some of the world’s largest banks while maintaining high prudential standards. Why liberalise at a measured pace This leads me to my second point.