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International Monetary Fund. Asia and Pacific Dept

2019 Article IV Consultation Discussions-Press Release; Staff Report; and Statement by the Executive Director for Macao SAR

International Monetary Fund. Asia and Pacific Dept

Development Fund in 2019, which would be managed by a newly independent public company in accordance with the Santiago principles. Property market The property market remained buoyant in the first quarter of 2018 but cooled off in the second half of 2018 after the authorities rolled out new macro-prudential measures in February 2018. The authorities welcome staff’s assessment that the current housing macro-prudential stance and related fiscal measures to mitigate systemic risks associated with the property market are broadly appropriate. Property-related credit

International Monetary Fund

-making by banks and lower credit risk; the Association of Cyprus banks is currently working on this. P riority R ecommendations M easures 1/ S tatus T iming P riority 2/ Financial System Stability Maintain ample capital buffers to offset expected credit risk deterioration New recommendation ST High Maintain prudential stance on liquidity Continued ST High Closely monitor liquidity developments in banks Implemented ST High Strengthen the financial stability function at the CBC ST

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worrisome given the rapid growth of the overall loan volumes. 19. These uncertainties prompted the central bank to take a tight prudential stance . In 2006, the NBS to raised reserve requirements on commercial banks’ forex liabilities, while in August 2007, it introduced additional regulations limiting retail lending to 150 percent of banks’ capital and shortening the maturity of cash loans from ten to two years. 20. But so far, the measures seem to have caused disintermediation and higher external borrowing with a mixed net impact on financial sector

International Monetary Fund

remained unabated. Nevertheless, countries like Ukraine and Bosnia saw some slowdown following tightening measures. In the case of Serbia, it remains to be seen whether the effectiveness of macro-prudential and supervisory policy measures will be durable. D. Elements of a Way Forward 48. Despite low levels of consumer credit, its rapid growth raises vulnerabilities . The concerns over high credit growth are mitigated by a relatively low level of consumer indebtedness, the tight prudential stance of the NBS, and a perception that the majority of Serbian banks

International Monetary Fund

regulatory authorities need to coordinate with their foreign counterparts to obtain information on the global position of the conglomerate. In Peru both financial and mixed holdings are overseen by the SBS. The SBS is establishing arrangements with other superintendencies abroad for the supervision of financial holdings. C. Current Standing of the Banking Sector 65. As noted, the banking sector in Peru experienced a strong improvement in its prudential stance during the 1990s , and the capital-to-assets ratio rose from 9.5 percent to 10.2 between 1993 and 1997

Ms. Anne Marie Gulde, Mr. David S. Hoelscher, Mr. Alain Ize, Mr. Dewitt D Marston, and Mr. Gianni De Nicolo

and the corresponding costs entailed. As in any risk management strategy, the total elimination of risks may be deemed to be too costly, keeping in mind the limited probability of large adverse shocks. Specific features of many dollarized economies may call for a more aggressive prudential stance against dollarization risks. The close association between dollarization risks, the monetary and exchange rate regime, and moral hazard argues in favor of more prudential activism. Because solvency risks derived from dollarization are systemic in nature, expectations of a

Mr. Jiaqian Chen, Mr. Francesco Columba, and Mr. Craig Beaumont

and tax deductibility of mortgage interest payments, with a supply-side measure, the mortgage risk weight. This is motivated by the circumstance that in the case of Sweden there may be more room for tightening the macro-prudential stance via demand-side instruments, as supply-side measures have already been tightened in recent years ( Chen, 2014 ). We use a modified form of the dynamic stochastic general equilibrium (DSGE) model of Gerali et al. ( 2010 ) for this purpose, making it suitable for a small open economy, adding additional macroprudential measures, and

International Monetary Fund

broad recognition of the need to further improve the business environment . This involved stepping up efforts to review and streamline a wide range of legislation and regulations—which the authorities indicated they were preparing. F. Financial Sector Policy 33. There was broad agreement that the NBS’ tight macro-prudential stance is appropriate, notwithstanding some distortions created within the financial system . The tight macro-prudential stance is justified by the need to ensure that substantial capital cushions the banking system’s vulnerabilities

International Monetary Fund. Western Hemisphere Dept.

-enhancing education and infrastructure spending. Although inflation expectations are stable, monetary authorities should be prepared to ease. Enhanced financial sector supervision and broadly unchanged macro-prudential stance can contain feedback effects from rising credit costs and financial tightening, all the while mitigating pro-cyclicality. 35. In a downside scenario, monetary policy should be the first line of defense. If external conditions weaken, more accommodation is warranted as disinflationary pressures are likely to accelerate because of a further widening output