In a new year marked by rising financial market volatility, regulators and policymakers must keep calm and maintain stability by leaning against the markets when investors overreact, Finance Minister Heng Swee Keat said yesterday.
He was speaking to central bankers and regional finance ministry officials at the opening ceremony of the Asean+3 Macroeconomic Research Office (Amro) in Singapore.
"We know that financial markets sometimes overshoot and overreact. But it is important that regulators and policymakers do not do likewise," Mr Heng said.
"A very seasoned policymaker once said to me that when markets panic, we must stay calm, and when markets become over-exuberant, we must lean against them."
Mr Heng encouraged officials to "separate the noise from the trend" and focus on helping their economies make structural changes as they undergo "transitional pains" such as moderating growth and lowering commodity prices.
From the United States to Japan, stock markets around the world have suffered a brutal start to the year. Mr Heng said: "The fairly widespread nature of the sell-off in markets in recent weeks brings into sharp focus the growing economic and financial interlinkages across countries."
Governments need a deeper understanding of these linkages, how risks are transmitted and how financial crises are propagated, and Amro can help by mapping these out, he said.
Amro is the independent macroeconomic surveillance unit of the Chiang Mai Initiative Multilateralisation agreement, a US$240 billion (S$338 billion) currency swap arrangement set up in 2010 among Asean member states, China, Japan and South Korea, as a safety net that members can draw upon during a liquidity crisis.
Yesterday's ceremony commemorated Amro's newly accorded legal status as an international organisation earlier this month. The office, in the Monetary Authority of Singapore building, was set up in 2011.
The new status gives Amro the same standing as other international organisations such as the International Monetary Fund (IMF).
This opens the door for Amro to deepen its collaboration with the IMF through staff and information exchanges, said Amro director Yoichi Nemoto.
"Until last month, we were not in that position," he said.
The new legal status also gives Amro greater flexibility in its external communications.
"We tried once to publish a report but we needed explicit consent from our member authorities and it took us about eight months to publish this report... From this summer, we will publish more reports," said Mr Nemoto.
Amro has 39 staff here, including 24 economists and nine Singaporeans.