taylor: from san francisco for our viewers worldwide, i'm taylor riggs. bloomberg "real yield" starts now. taylor: coming up, yields on the u.s. 10 year slipping back below 1.90 heading into the final week of the year as investors place their bets on rates in 2020. signs of optimism. the steepening yield curve may not signal the all clear just yet. what it means for inflation and growth expectations in the new year. and wrapping up the year of outperformance in credit.

corporate bonds on track for the best returns in a decade, but how long can the rally continue? we begin with the big issue, markets betting low rates are here to stay in 2020. >> it is hard to see the yield breakout from here. >> bond yields moving sideways. >> we can't generate any inflation right now. >> still attractive but certainly not breaking out. >> 1.20 by the end of the year. >> if we get to 1.2% on the 10 year, we are looking at a global recession. >> we are going to test 1%. >> a lot of things have to be go incredibly wrong to get to 1%. >> unless the market begins to price in additional cuts, the 10 year, at most, will drop down to the 1.60 range. >> the fed will probably not cut again. >> if there is any weakness in the data, you will see an outsized rally in bonds. >> the path to least resistance

has been lower, and i see no reason to think that will change in 2020. taylor: can we break out of the range set in 2019? joining us from new york are collin martin, peter tchir of academy securities, and in pasadena, john bellows. i want to get your 10-year forecast from each of you for 2020. collin: we think it will rise modestly in 2020, somewhere in the 2.25 range. maybe as high as 2.5%. we think short-term rates will stay anchored. we think the fed will stay on hold. with signs of stabilization across the global economy, as well as in the u.s., pickup in inflation expectations, we can get close to 2.25 for the 10 year treasury. taylor: peter? peter: i think we will see 2.25 as soon as january or february.

higher yields, deeper curves as the global growth gets priced in. more stimulus out of europe. john: the better growth optimism is an argument for higher yields, but i would highlight two other components. first, inflation continues to be very subdued. 2019 was supposed to be a year of higher inflation. not only did that not happen but inflation moved lower across a whole set of measures. the second component is the fed. they have adopted an asymmetric reaction function, unlikely to raise rates given the low inflationary environment. there is a chance they cut rates, whether in response to a growth downturn, which would be a straightforward reason to cut, or even if inflation is too weak, chance that they cut. against that, subdued inflation and asymmetric and accommodative fed. our view is those things will matter more and keep yields low for the foreseeable future.

taylor: i want to talk about the fed. the wirp function on the bloomberg shows no movement in either direction in the first half of the year. i know it is far out, but what is your take on fed action, at least in the first half of 2020? collin: we think they will be on hold. we like to say for the foreseeable future. that is what the markets ar pricing in, and that's what fed officials are telling us. with the three cuts they did this year, they have successfully un-inverted the yield curve, and now financial conditions remain easy. barring a major change in the economic outlook, maybe a risk off environment where we see stocks fall, we think they will be on hold. taylor: peter, i want to get your take now that phase one of the trade deal has been sort of resolved, what do you need to see in the economic data to get the fed to move in either direction?

peter: i don't think the fed will do anything in rates unless there is a big change in sentiment, very positive or negative. we may see as early as january, containing how big the balance sheet will be. a lot of this rally started in october when they started regrowing the balance sheet. looks like we will make it through the year end without any problems in the short-term funding market. they may start to set expectations that we cannot keep growing at this pace. that will be a headwind on stocks, ok for the rates market. taylor: i want to go back to the steepening yield curve. that is bringing some optimism to a lot of the markets here. listen to what morgan stanley is saying that it is a step in the right direction. >> i take confidence from the steepening of the yield curve. that is a measure of success, of confidence in the future.

now we are talking about an endogenous rise in long-term rates. the market is more optimistic about the future. taylor: james athey of aberdeen giving a little bit of a different take. this is what he had to say. >> you don't get a recession when the curve inverts. you get it when it comes back, dealing with the problems that have built up in the expansion phase of the cycle. essentially, if i were to look at the curve today, i would say this is classic pre-recessionary behavior. taylor: john, your take on a steep yield curve, the steepest since 2018? john: i think the re-steepening of the yield curve, the fed deserves credit. at the beginning of 2019, the yield curve was inverted, sending a clear signal that short rates were too high, monetary conditions too tight, and the fed's cuts have addressed that.

however, it is premature to signal an all-clear here, to declare success. if you think about the level of yields, inflation breakevens on the 10-year are 1.75, well below the 2% mandate, below where we were six months ago. a lot below where we were 18 months ago. the yield curve is not inverted, and the fed deserves some credit, but we are a long ways from an all-clear. the level of inflation breakevens is still worrisome and demands attention from the fed. taylor: we are showing a chart of the fed's balance sheet, you were highlighting this, the togetherness of the fed's actions and the balance sheet, and how we see a steepening yield curve. is that different this time around? it's a good sign given rates are rising on the long end versus the last time we saw a steepening of the yield curve.

it bets on the short end of the curve. peter: i want to take one step back. august is when we got the inversion. there were a lot of technical factors at play. a bunch of inflows into long dated treasuries, a shortage of sellers. some of that flattening was purely technical. we reversed that. we wrote back in august, steepening the yield curve should be the fed and treasury department's job. the fed has done a lot for that. what i'm looking for now is the treasury department to issue more duration. this treasury is focused on issuing a lot of t-bills and front-end bonds. the value is skewed a little to the front end. i would like to see them come out and issue more 10-year, 30, maybe introducing a 20-year. i think the steepening yield curves gives comfort. it is really the yield curve that leads the discussion, rather than the discussion leading the yield curve. taylor: collin, do you agree,

are you comforted by the steepening of this yield curve? this time is different with the re-steepening after the initial inversion. collin: i agree with john, this is a success by the fed. i do think it's important to put it in perspective. it is still relatively flat if you look at the three-month, 10 year, you are still in the 25, 30 basis point range. when you look at the broad yield curve, still a relatively flat trend. if you look at the past mid cycle adjustments of the 1990's, that was also followed by a steepening of the yield curve. we do think it is a success, but we need to see more before we see an all clear sign. taylor: john, as you look at 2020, is the pain trade higher or lower yield? john: if i could respond to

something that collin said about the midcycle adjustments. it's important for investors to understand this is not the 1990's anymore. the fed is doing something different than what they've done in the past, not responding to something global. they are responding to low inflation here in the u.s. they have made that clear. powell has tied future rate hikes to inflation explicitly. this is not something that we think will be reversed in the next two years. as long as inflation remains low, the fed will be on hold. it's important to emphasize, this is not 1990, this is not -- this is about inflation. one thing that strikes me about the pain trade, what is the consensus? one consensus that we hear all the time is the steepening of the yield curve. that could very will happen if you see some kind of

reignition of global growth and optimism, yields move higher on the backend. but if inflation did not move higher and we didn't see an increase in global optimism, then i think steepening the yield curve would be a pain trade in the sense that consensus is there already. you could see a flattening as a result of that. first point, this is not the 1990's. important for investors to understand that. secondly, the steepening yield curve is a consensus trade. that means the risks are flatter from here. taylor: everyone is sticking with me. coming up next is the auction block. the treasury department selling $113 billion of longer dated notes in the final full week of 2019. strong finish for the corporate credit markets. that is all coming up next. this is bloomberg "real yield." ♪

taylor: i'm tayler riggs. this is bloomberg "real yield." i want to go to the auction block and begin with asia. japan sold just under two trillion yen of negative yielding two-year bonds. the bid to cover ratio was 7.4 times closed. italy sold 2 billion euros of zero bonds due in 23 months. investors offered to buy 1.48 times the amount sold. the bonds were sold at a slight premium with a yield of -.005%. here in the u.s., the treasury department holding three auctions this week for 2, 5, and 7-year notes. demand of $32 billion for seven-year notes rose from the last auction. demand for two- and five-year notes was lower than average. elsewhere, corporate credit is looking to finish the year on a high note with high-yield rallying for 16 consecutive sessions. wells fargo weighing in on the

recent outperformance in the junk space. >> across high-yield, you are pulling in 2020 returns into 2019. there is a year-end squeeze going on as people scramble, looking for that recovery trade, where can i get the incremental yield, incremental return, how can i set myself up for next year. we have seen a meaningful squeeze in the market. taylor: still with me are collin martin, peter tchir, and john bellows. collin, i want your take on some of his comments, that we have pulled a lot of those returns in the ccc space specifically back into 2019. do you see that as being the case? collin: we do. we think it will be difficult to mimic the returns we saw this year in the credit markets, especially high-yield. we have gotten to a point where spreads are low, prices are high, and the returns we saw this year, frankly, will be difficult to follow, unless we

see spreads go to all-time low levels. our guidance for investors is to be very defensive, suggest underweight in high-yield bonds, especially the junkiest part, like ccc's. the outlook is to earn your coupon. coupon payments will make up most of the return in 2020. taylor: peter, your take on credit in 2020? peter: we came into december looking for this squeeze across the board. the first step is figuring out which credits benefited unfairly by the squeeze, start selling those. there will be a return to weakness for those weaker credits. we like cyclicals, autos, commodities. certain names were beat up that are set to come back. i think those can continue. it will be difficult for managers to figure that out, but that is what you're supposed to be doing with your portfolio now. figure out which of those weak names have upside, adding to them, and then cutting losses on

those that have a surprising rebound. taylor: the dallas fed president robert kaplan weighed in on the credit market, saying those tighter spreads might be cause for concern. >> b and bb credit spreads are so tight. bbb spreads are very tight. if i see the market is distinguishing between lower quality credits and better credit, i think that is an encouraging sign. my bigger worry is you have got increasing pe, historically low cap rates, tight credit spreads, and i'm just keeping a close eye on excesses and imbalances. taylor: john, do you agree, tight spreads a cause for concern? john: one thing he has highlighted, there has been differentiation. higher-quality has outperformed, ccc's have lagged, a recovery in december, but disappointing

performance this year relative to the broader market. that is an important point. in that environment, managers that have the ability to do the fundamental credit work and differentiate between names and sectors are really best positioned to outperform. our team has done a great job on that. that will be the key going forward, to do that differentiation that president kaplan is talking about. it's not just buying the highest yielding bonds. you have to do that differentiation, have to be a fundamental manager in order to perform well. taylor: what is the high-yield market telling you with spreads at 3.26, down from 5.50 a year ago, collin? collin: investors are not being compensated for taking on at high risk that they offer. you look at aaa's down to b, if you look at the tiers of each market, they are close to the post-crisis lows. the only types of bonds that

have spreads above that is ccc. you are not being compensated. with high yield, it is not out of the ordinary to see spreads move sharply. the lower they are, there is less of a buffer for investors to offset some of that. taylor: peter, we were looking at the chart. it's shocking to see high-yield at 3.26, and then investment grade at 97 basis points. what looks more overvalued to you? peter: i'm fairly comfortable with credit here. we all talk about reversion to the mean. you go back to the early 1990's, we spent all the 1990's at these credit levels, most of the 2000's at these spread levels. it will turn out that investors were overcompensated to take credit risk the past seven years, and we could normalize. we will see a world of bbb credits, where single-a moves

down to bbb, bbb holds at bbb, and maybe if we get a recovery in the economy, bb getting upgraded. we will look back and say, what was the problem about bbb spreads? we saw this year, as companies were going through the debt diet, those companies that got in trouble at the investment grade level could turn themselves around. i think we will probably not see a ton of spread tightening from here, but i don't think we will go back to widening. people will have to find the opportunities in those beaten up cyclicals, those names that were undervalued. people will be searching for yield and that is where they will find it. taylor: john, i want to read something from pimco who thinks the strength in high-grade credit is here to stay. he says there is not enough high-quality income producing assets to meet the demand. that is the reason credit did so

well this year, not just the fact that the fed and other central banks cut rates. it's just that there is that much demand. does demand continue in 2020? john: i think the fed is a big component of this. they are accommodating in policy. the moves will lengthen the cycle which is reducing one of the major risks in credit, reducing the recession risk. another thing the fed has done by bringing down rates is reducing the hedging costs for foreign investors who want to buy credits. i think both of those are positive. the fed is definitely a part of the pro-credit story. i want to come back to the idea that there is differentiation within the credit market, and managers can take advantage of that. we have noted that energy credit has really lagged. energy credit has lagged even though management teams are being very prudent with their balance sheets. you see asset sales in order to

manage their maturity schedules, bring down leverage in some cases. and yet spreads are still quite wide to the markets. energy would be a case where prudent balance sheet management from the leadership and those companies is a positive. spreads are not reflecting that. that is where you could take some risk. taylor: everyone will be sticking with me. still ahead, it is the final spread. this week features manufacturing data out of the u.s. and china before closing out the year. this is bloomberg "real yield." ♪

taylor: i'm tayler riggs. this is bloomberg "real yield." time for the final spread. coming up over the next week, monday, chinese pmi and u.s. wholesale inventories. tuesday, the bond market closes early ahead of new year's day on wednesday.

thursday, china manufacturing pmi data. friday, minutes of the fed's latest meeting. still with us around the table are collin martin, peter tchir, and john bellows. peter, tony crescenzi told us that 2020 will be a year of coupon clipping. if you look at returns, is it price or coupon in 2020? peter: for the total return investors, you'll have to be careful. it may be a coupon clipping. for spread investors, you can do well. you will have to be aggressive, as john talked about. energy could outperform. you have to be overweight. those sectors still have juice in them. you have to time the market. there will be opportunities to buy and sell, rebalance your portfolio. i think that will drive returns much better. taylor: it is time for the rapidfire around. how many fed cuts in 2020?

collin. collin: zero. peter: zero. john: i will be a little more bullish and say one. taylor: what is the upper bound for the 10-year in 2020? collin: we think 2.25. upper bound, 2.5. peter: 2.75. john: for the 10-year treasury? taylor: upper bound. john: 2. taylor: what part of high-yield outperforms? you know what, i will just get one answer there. collin martin, peter tchir, john bellows, thank you. this is bloomberg "real yield." ♪ [ dramatic music ]

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haslinda: hello, i'm haslinda amin. he is the central bank governor of one of the largest financial hubs in the world, singapore's ravi menon is betting big on fintech, exploring digital currencies, looking to take the lead of what the future of banking will look like at a time of global uncertainty. this is a conversation with the managing director of the monetary authority of singapore. avi menon, thank you so much for your time today. ravi: thank you, haslinda. haslinda: when it comes to singapore's innovation efforts, ne of the key areas is fintech

and the monetary authority of singapore plays a huge role in that. in fact, some of the initiatives included revelatory sandboxes where companies can try out their ideas alongside regulators. since the initiative was launched in 2015, what has been achieved? what do you view is the key successes so far? ravi: we have come quite a long way. it is heartwarming how things have taken shape. we now have a vibrant fintech ecosystem. if you look at financial institutions, fintech is not only about nonfinancial players applying technology to financial services. a big part is in the application of technology within financial institutions to create better products. if you look at our national institutions today, we have more than 14 innovation labs. in 2015, there were hardly any. many of the global banks, insurance companies, and asset

managers that set up regional or global innovation centers have been doing very interesting experiments, a range of technologies from blockchain on in a variety of use cases. so, that is very exciting. a lot of collaboration is coming out of that. the fintech community itself, in 2015, we had 50 startups. now, it is over 600 and still growing. this is just over the space of four years. it is attracting a lot of interest. if you look at financing, in 2015, we had $400 million worth of investment going into fintech. hat has grown 2.5 times. we just crossed $1 billion in funding of singapore headquartered fintech firms over the first three quarters. we are not done yet. we have got another quarter to go. we will be well in excess of one

billion singapore dollars. haslinda: in terms of funding, you are allocated $225 million over the next few years to develop fintech. what is the funding plan for fter those five years? ravi: that is something we are reviewing right now. this was announced in 2015, and the funding period is going to end soon, i think it has been money that is extremely well pent, both in terms of supporting fintech infrastructure and architecture. the public good nature of which this funding is required, we have had to lay the cost on financial institutions. this has been good. second, the labs i spoke about. going forward, i suppose we will have to take deep dives in certain areas of technology. two areas that come to mind, cyber security, and artificial intelligence. these are, in a sense, pervasive horizontal types of technologies with very multiple applications. we had a grant where we support ai experiments directly and an interesting feature is that even as you employ artificial intelligence, it requires the

financial institution to make sure that you train the people so that they can take on the new jobs. it is not about machines taking jobs. it is machines enhancing the jobs people can do. i think there's more scope to expand our horizons beyond that. cyber is another area. we are given small grants to institutions to upgrade cyber security capabilities. we can now think blue skies about what is the next quantum leap to make in cyber for the financial sector. we will probably announce it ometime next year. haslinda: earlier, you touched on digital banking. you are encouraging digital banks to further the competition within the financial space. ow much traction has there been? ravi: referring to the digital

bank licenses, we just put out the requirements, and we are now getting lots of interest. so i think next year, you will see who will be successful. we have five licenses up there. this will inject more competition, and i think that is ood. position of weakness. the banks, both local and foreign banks have strong digital offerings. i think some of them, local banks have won accolades with respect to digital infrastructure for being the world's best. haslinda: it has changed the banking landscape, right? ravi: the last four or five -- three years, it has changed tremendously. it has been a big leap. it is not as if we are lacking something. no bank we are in competition with is lacking either. it is very keen competition, but we thought we could do even more. the main purpose is not so much

that the existing landscape is lacking, but can it be made better? haslinda: given these developments, do you envisage a time when there needs to be consolidation within the banking industry, because if you recall what the founding father of singapore said, three banks are too many. what do you think now, as we sit here about talking about the digital banks? ravi: if some consolidation happens, it might not be an entirely bad thing. but one needs to be mindful of a oncentration risk. three banks is not too many, ecause if there were three local banks, first you have to understand there are 150 banks operating in singapore. about 20 of them probably are very active in the retail business.

they have very large presence, some banks like citibank have almost as much accounts as they local banks, and in many areas of business, they are dominant. deutsche, and so on, ubs and credit suisse are dominant in banking. if you look at business lines, various business lines, foreign bank strength is very strong. we have quite a diverse landscape. it is not clear to me that we need to see more consolidation. what we are more likely to see and what we would like to see are interesting joint ventures and a combination between traditional services and nonfinancial players, that really harnesses it, rather than consolidation on its own, which is mostly about cutting costs. which i'm not sure is the paramount need for now. haslinda: what is your view on whether banks should be involved? ravi: we need to invest in technology, get our hands

dirty. haslinda: that takes us to libra. ravi: facebook's proposal has generated tremendous amounts of new thinking.

♪ haslinda: i want to touch on digital currency. not too long ago, federal bankers stayed clear of digital currency, but the landscape has changed. we have the likes of sweden, the bahamas, china, talking about potentially having their own digital currency. what is your view on whether central banks should be involved in digital currency? ravi: we should be involved, meaning we need to keep abreast of the technology. we need to get our hands dirty and actually work with cryptocurrencies and gain valuable experience, because we issued the singapore dollar as a digital currency.

that was in blockchain, so i think it is impossible for us to be immersed in it and not stay away from it. then the question becomes a bit more -- the answers become more nuanced. what is the purpose? what is a digital currency supposed to do? we make another distinction between this. the wholesale additional currency is what you see in blockchain. whereas with any digital token, it is not necessarily have a life of its own, but it is used to affect the transaction. canada will issue additional currency. it does not get outside of that banking system. what people hold on to, so if the problem you are trying to solve is cross-border payments, you don't need a retail

additional currency. our leaning is that for now, we don't see a need for retail, which means issuing currency directly to the public. that is not how money is issued in real life. and for all these years, it has always been through the banking system. there is good reason for doing that. the banks create out of a monetary base, create money through the lending ctivity. through the credit creation process. if central banks were to be directly issuing digital currencies to the general public, what do the central banks do with this money? central banks are not geared up to be the people who extend credit. that is the job of banks. so we need to think how that will work in practice. then you have to also ask why

there is a demand for central banks to issue currency. quite different from retail. i think, this is probably less of a monetary policy question than a political one, if people need to have a digital equivalent of cash, with all of the properties of cash, the two most important being anonymity and finality, what do i mean -- anonymity means today i make a ransfer to your account, it is confidential, but if the authorities suspect some wrongdoing, they can actually lift and look into the transaction. that is how we detect money laundering, tax evasion, because there is a digital trail in the ransaction record.

when we go into digital payment, you lose that absolute anonymity of cash, there's no way that can be traced. haslinda: that takes us to libra. we have had the g7 sounding a note of caution. where do you stand on that, because facebook says that regulators are delaying regulation, and that is tantamount to putting a lid on innovation. ravi: we welcome innovation. i think facebook's proposal has generated tremendous amount of new thinking, which is essential for the future. and all that you said earlier on about the central banks showing interest in digital currencies have been given a big boost by what facebook has done. on the face of it, pardon the pun, facebook's proposition is that it wants to make cross-border payments cheaper, faster, and better, and it wants to enhance financial inclusion, because it is far easier to have a bank account. on the face of it, i think it as a lofty ambition, and i

think they deserve an answer that the central banking community and the banking ommunity needs to work on. partly, because we have not done too good a job at this that you have proposals like this merging. not saying that the proposal is bad. it is pointing to a real gap. i have empathy for that. haslinda: mark carney talked about a reserve currency, presumably on the basis of the dominance of the u.s. dollar. what is your take on this idea? ravi: that gives another nuance to the whole issue of central banking currencies. is it fairly for payment, for anonymity? here, i think the argument is about the dominance of the u.s.

dollar and whether that is a healthy thing for global financial stability. because even when two countries trade or two people make transactions, there is a dollar link that gets converted. bilateral exchange rates are referenced to the u.s. dollar and then back to the cross rates. so is that a good or bad thing? that system has served us well so far. going forward, it is not unreasonable, as mark seems to be alluding, not unreasonable to ask if that is the best way forward, whether we should find a more stable system of global reserve currency. again, it is all about the way regulators in the central banks think, do we have a concentration risk in the u.s. dollar, and what if something ent wrong?

do we want something that is a bit more diversified? i think that is one of the questions that libra poses, because of its proposal to basket of currency. the central banking community is trying to get at the same thing. there is now tremendous unrealistic expectation placed on the central bank when you run into monetary policy. i think that is wrong. ♪

haslinda: you alluded to the challenges facing central bankers today. in your view, what is the biggest challenge given all the uncertainties? technology is one. also geopolitics, coming from

where central bankers seem to be the go to to solve the problems of the world. ravi: yes. i think that is one of the big burdens that has been placed on central bankers across the orld, because of what they did fabulously during the financial crisis and subsequently, and holding up the global economy and global financial system. there is now tremendous unrealistic expectations placed on central banks that every rough patch we run into, monetary policy is going to get us out of it. i think that is wrong. i think it is also wrong for central banks to feed that expectation. monetary policy provides the basis for sustained noninflationary economic growth.

it provides stability, predictability over the medium term. that is the basis for them caring on economic activity. but it can't be that every slowdown, every risk or threat on the horizon has to be addressed by monetary policy. i think fiscal policy has a strong role to play, and that has not been sufficiently addressed, partly because too much of the weight has been placed on monetary policy. we need a better balance between the two, otherwise it is exceedingly unfair on the central banking community. haslinda: speaking of the global economy, there is talk of possibly a looming global recession. singapore escaped a technical recession and the mes east policy, but not to the extent that some people expected. what is driving some of the optimism that you see? perhaps in 2020? ravi: i think you always want to keep some powder dry and not deplete all your policy assets. singapore is fortunate, we have both monetary and fiscal policy buffers.

quite good. our public finances are strong. we can, if we want, if it is necessary, apply fiscal stimulus. we have been on and appreciating path of the rate right now, we have a sufficient buffer there. we have reduced the slope. let's see how the data comes out. a key assessment to be made is whether this is bottoming out and whether we will see a modest recovery next year. if that is the case, i think we're in pretty good shape, but if things take a turn for the worse, i think you need some buffer. you need some ammunition. and so, we are keeping some powder dry and, if necessary, we are prepared to use it. there is still space. haslinda: speaking of space, what policy tools have not been used? because when you take a look at central banks, they are willing to cut rates, to go to negative. they are talking about qe. for singapore, how might qe look

if you need qe of some form? ravi: singapore would not need qe, because our monetary policy is based on exchange rate. so we are not subject to the zero lower bound of interest rates, and even then then you have lower interest rates. with the exchange rate, that does not apply. we can, if necessary, bring the exchange rate to zero, as we have done before. we have never before had a policy of deliberately depreciating the currency, but we can re-center the exchange rate downward, which we have done before, too. if we think the current rate is too tight, we can re-center and without flexibility, there is actually no constraint. so we have a fair amount of policy space on the monetary fund. we don't have to think about qe. haslinda: back in may, the u.s.

treasury put singapore for the first time on the watchlist for monetary currency practices. by rule, in its upcoming report, it will include singapore. what is your take on whether there has been a missed understanding of how singapore carries out its currency practices? ravi: yes. we have been in close touch with the u.s. treasury on this. very good conversations. very good exchange of views. we are keeping very close touch. they understand how monetary policy works, and in the report, i think there is acknowledgment that in the small economy, the exchange rate matters more than the interest rate. therefore, we have chosen to target the exchange rate, and that means that sometimes, you have to intervene in both directions to keep the exchange rate on the prescribed path. so i think they understand that, but they have a framework which they need to apply globally. they want to make sure that

currency intervention is not carried out with the purpose of gaining unfair export competitiveness advantage. we have explained to them extensively that that is never the way we operate. our exchange rate is solely guided by inflation and growth, the typical monetary policy onsiderations. we have also announced we will be transparent in our exchange rate interventions. beginning in july, we announced how much we have intervened. we can't do it in real time for obvious reasons. obvious tactical reasons. but, we don't have a problem disclosing how much we intervened in the preceding six months. so people know how much we have intervened. haslinda: is there concern, given the unpredictability of

the trump administration, that could be used in event of a trade war, for instance? ravi: we actually run a trade deficit with the united states, so there ought not to be a complaint on that front. so, i don't see it becoming an issue, and like i said, although we have been named in the report, we have had very good conversations with the u.s. treasury, ongoing dialogue. exchange of views, very constructive and fruitful. we understand their concerns. they understand where we are operating from. so i think -- i am pretty hopeful that being named in the report is one thing, but whether that leads to adverse consequences is quite another. i don't think it's likely. haslinda: one final question, what keeps you up at night? ravi: when you ask this question to bankers, you get a very similar answer. i think about technology risk. because all the stuff we have talked about, economic slowdown, trade war, they are not entirely new. you can figure out what the

likely consequences are, the likely countermeasures might be, and so on. traditional financial stability issues, we have got a reasonably good handle on it. since the last crisis, the financial stability board has done a good job. i think we have not paid enough attention to technology-related isk. and the pervasive user technology is usually beneficial, but i'm not sure all the players involved, financial institutions, consumers, central banks, regulators, and governments, whether all of us have a good handle on the various kinds of cyber risks or more broadly, technology-related risks that can potentially have systemic consequences and can bring down institutions potentially or bring down or create gridlock in the financial system. haslinda: ravi menon, thank you so much for your insight today. it has been a pleasure. thank you. ravi: thank you, haslinda, thank you.

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