Ravi Menon: Reforms in banking regulation – effects and outcomes Keynote address by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the Symposium on Asian Banking and Finance, San Francisco, 11 July 2016. *  *  *  Mr John Williams, President of the Federal Reserve Distinguished guests, ladies and gentlemen, good morning. Bank  of  San  Francisco  Let me, on behalf of the Monetary Authority of Singapore, express our appreciation to John and his colleagues at the San Francisco Fed. •  It has been a fruitful collaboration on this Symposium. •  We had a good meeting in Singapore last year, and my colleagues and I are very pleased to be here in San Francisco for this year’s Symposium. There has been no lack of excitement for global financial markets over the past year: •  the US Federal Reserve Bank’s deliberations whether to raise interest rates;  •  China’s transition to a more market-based exchange rate amidst a slowdown in economic growth; and more recently  •  the decision by UK voters to leave the European Union. But even as banking stocks have taken a pounding – forgive the pun – the global banking system has generally held up well. There are no doubt fragilities in some European banks, but as yet no disorderly failure or contagion. I think this has at least something to do with the regulatory reforms put in place since the financial crisis.
Now there is also the worsening of geopolitical tensions surrounding Iran which could significantly affect the oil price, with negative effects on world growth and stronger pressures on inflation. In Chile, the persistence of strong domestic spending may alter the baseline scenario in two ways. On one hand, it may intensify the inflationary risks now perceived, and increase the propagation of supply-side shocks, like those in oil or fresh fruits & vegetables. It is also possible that the velocity at which core inflation has increased is associated with tighter output gaps than assumed in the baseline scenario. On the other hand, the sustained growth in domestic demand may trigger a widening of the current account deficit and amplify the effects of shocks from abroad on the Chilean economy, especially if accompanied by a falling copper price. Let me share with you some final thoughts. Final thoughts The macroeconomic environment just described has opposing effects, as there are significant risks from different fronts. As I said, the baseline scenario uses as a working assumption that the MPR will follow a path comparable to the one that can be derived from the prices of financial assets observed at the statistical cutoff of this Report. Any deviations away from this trajectory will depend on the implications of domestic and external macroeconomic developments on the inflation outlook. As I also said at the beginning, while risks for short-term inflation have increased, the risks from abroad are still important and may cause significant damage to the Chilean economy.