diff --git a/compiler/main/DynFlags.hs b/compiler/main/DynFlags.hs
index d764b6db289c5026805bd440ed5c3c0ae230eb9d..d3887c1fbd88136eded2e714bf82d78bf12c5101 100644
--- a/compiler/main/DynFlags.hs
+++ b/compiler/main/DynFlags.hs
@@ -198,6 +198,7 @@ data DynFlag
    | Opt_IncoherentInstances
    | Opt_MonomorphismRestriction
    | Opt_MonoPatBinds
+   | Opt_MonoLocalBinds
    | Opt_ExtendedDefaultRules           -- Use GHC's extended rules for defaulting
    | Opt_ForeignFunctionInterface
    | Opt_UnliftedFFITypes
@@ -1781,6 +1782,7 @@ xFlags = [
   ( "MonomorphismRestriction",          Opt_MonomorphismRestriction, const Supported ),
   -- On by default (which is not strictly H98):
   ( "MonoPatBinds",                     Opt_MonoPatBinds, const Supported ),
+  ( "MonoLocalBinds",                   Opt_MonoLocalBinds, const Supported ),
   ( "RelaxedPolyRec",                   Opt_RelaxedPolyRec, const Supported ),
   ( "ExtendedDefaultRules",             Opt_ExtendedDefaultRules, const Supported ),
   ( "ImplicitParams",                   Opt_ImplicitParams, const Supported ),
diff --git a/compiler/typecheck/TcBinds.lhs b/compiler/typecheck/TcBinds.lhs
index 59cd315e0bf703e053856f2b11a09b9c4305c996..4fd3ae0c890ce46167cff4c9cccd1b21a77a21ff 100644
--- a/compiler/typecheck/TcBinds.lhs
+++ b/compiler/typecheck/TcBinds.lhs
@@ -734,7 +734,7 @@ generalise :: DynFlags -> TopLevelFlag
 -- The returned [TyVar] are all ready to quantify
 
 generalise dflags top_lvl bind_list sig_fn mono_infos lie_req
-  | isMonoGroup dflags bind_list
+  | isMonoGroup dflags top_lvl bind_list sigs
   = do  { extendLIEs lie_req
         ; return ([], [], emptyBag) }
 
@@ -1157,10 +1157,12 @@ tcInstSig use_skols name
                               sig_loc = loc }) }
 
 -------------------
-isMonoGroup :: DynFlags -> [LHsBind Name] -> Bool
+isMonoGroup :: DynFlags -> TopLevelFlag -> [LHsBind Name]
+            -> [TcSigInfo] ->  Bool
 -- No generalisation at all
-isMonoGroup dflags binds
-  = dopt Opt_MonoPatBinds dflags && any is_pat_bind binds
+isMonoGroup dflags top_lvl binds sigs
+  =  (dopt Opt_MonoPatBinds dflags && any is_pat_bind binds)
+  || (dopt Opt_MonoLocalBinds dflags && null sigs && not (isTopLevel top_lvl))
   where
     is_pat_bind (L _ (PatBind {})) = True
     is_pat_bind _                  = False