Annual Report 2000/2001
Money and Credit
Broad Money Measures Contract
Growth of narrow money, M1, slowed from the sharp rebound in early 1999 when economic activity picked up. However, broad money aggregates, M2 and M3, contracted in the second half of 2000, on account of a decline in both fixed and savings deposits. (See Chart 14.) The decline in broad monetary aggregates amidst a strong economic growth could partly be attributed to the shift in funds from fixed and savings deposits to investment products such as stocks, unit trusts and investment-linked insurance, as investors searched for higher yields.
Benign Interest Rate Environment
Reflecting ample liquidity, domestic interest rates were relatively low and stable in 2000, although there was a slight pick-up in the domestic three-month interbank rate to 2.81% at year-end. (See Chart 15.) Its differential with the comparable US$ SIBOR widened to historical highs of above 400 basis points over the second and third quarter of 2000, reflecting the tightening monetary policy stance in the US, while domestic rates remained low as banks were flushed with liquidity. In line with the more recent easing of policy by the US Federal Reserve, interest rates moderated in 2001, with the domestic three-month interbank rate dipping below 2.00% in February, before ending the quarter at 2.38%. The differential with the US$ SIBOR also narrowed.
Domestic Credit Growth Remains Weak
The recovery in commercial bank loans was sluggish and uneven throughout 2000, largely concentrated in loans to individuals rather than to the business sector. (See Chart 16.) In particular, loans to professional and private individuals grew at double-digit rates, on the back of improved consumer sentiments. Despite the slump in residential property market, housing loans recorded sustained growth in 2000, reflecting the refinancing of mortgage loans given the low interest rate environment and intense competition between banks. Lending to the manufacturing sector also saw a mild pick up in the last few months of 2000. In the first quarter of 2001, loans growth rose to 7.1%, compared with 4.7% in 2000, although this was partly on account of DBS Finance’s integration with DBS Bank. Adjusting for its effect, loans to non-bank customers would have grown by a slower rate of 4.7% in the first quarter of 2001.
[The Economy] [Monetary Policy in FY2000/2001] [External Environment] [Economic Activity] [Labour Market and Inflation] [Money and Credit] [Outlook for 2001] [Monetary Policy and Economic Research]
