Asset Bubble Fears To Spark Fresh Macroprudential Measures


BMI View: Past painful experiences in Asia and recent reminders from the US of the adverse impacts from the bursting of asset bubbles have elevated the importance of mitigating systemic risks for many Asian monetary authorities. Indeed, over the course of 2013, a number of monetary authorities in Asia have been very active in implementing macroprudential rules, as many are unable to use the traditional interest rate tool. With the size of banking loans in many economies now bigger than the size their economies, we believe that central banks will implement more measures targeting banks' lending standards and risk assessments, alongside rules to discourage the inflow of foreign capital.

The deep economic impact suffered by countries like Spain and the US from the bursting of their property bubbles has spurred monetary authorities in Asia to improve the resilience of their financial systems, with a new focus on how the linkages between asset markets and credit in a country's banking system can reinforce price trends and exacerbate vulnerabilities. Over the last year, property markets in countries like Indonesia and New Zealand saw a sharp growth in prices (in the region of 12% and 8% respectively) while markets such as Hong Kong, Singapore, and Malaysia have recorded persistent increase in prices over the last six years. Together with client loans extended by banks climbing to levels above 100% of GDP in many Asian economies, it is unsurprising that a number of monetary authorities in Asia are keen to explore means by which they can keep banks and property speculation-driven credit growth in check.

Interest Rates: Constrained By Policy And Need For Precision

Sharp Gains In Regional Property Prices Triggering Alarm Bells
Property Price Growth For Selected Asian Countries, From Low (LHS), CAGR & Over 2013 (RHS), %

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