MAS: Annual report 2006 / 2007
CONTENTS
HOME
 
ENTERPRISE: Our Role
BUILDING ON A ROBUST MACROECONOMIC ENVIRONMENT
DEVELOPMENTS IN THE SINGAPORE SECURITIES MARKET
FOSTERING A SOUND & REPUTABLE FINANCIAL CENTRE
RISK MANAGEMENT & INFRASTRUCTURE
GROWING SINGAPORE AS AN INTERNATIONALLY COMPETITIVE FINANCIAL CENTRE
CURRENCY
ORGANISATIONAL INITIATIVES
ENTERPRISE: Our Role
BUILDING ON A ROBUSTMACROECONOMIC ENVIRONMENT 14
The World Economy: A Fourth Consecutive Year Of Robust Global Growth 14
Box 1 -Economic and Financial Integration in East Asia 15
International Financial Markets: A Cautionary Note Against Abundant Liquidity 17
Strong Capital Inflows Make Asia Vulnerable To Shifting Risk Appetites 19
The Singapore Economy: Sustained and Broad-based Strength 20
Growth was Broad-based Across Key Sectors of the Economy 21
Labour Market Conditions Continued to Strengthen 21
Inflationary Pressures Remain Largely Contained,  
  In Part Reflecting the Effects of Globalisation 21
Monetary Policy - An Anchor for Price Stability in A Strong Economy 23
Strengthening the Monetary Policy Formulation Process 23
Pushing the Frontier of Monetary Policy Research and Analysis 23
Box 2 - Enhancing Liquidity Management: The MAS Standing Facility 24
 
Box 2
ENHANCING LIQUIDITY MANAGEMENT: THE MAS STANDING FACILITY
The MAS Standing Facility, launched on 1 June 2006, serves as a safety valve for the banking system and complements Money Market Operations (MMO). By allowing Primary Dealers (PDs) in Singapore to initiate SGD deposit or borrowing transactions with MAS on an overnight and interest-paying basis, the standing facility allows MAS to match base money supply and demand. This reduces intra-day volatility in overnight interest rates.

Unlike most central banks that operate interest rate-based monetary policies, MAS did not have an interest rate target to base the Standing Facility. As a result the MAS Standing Facility derived a market reference rate from the weighted average rate of successful bids for S$500 million of overnight clean borrowing conducted daily during MMO. The borrowing rate for PDs is 50 basis points above, while the deposit rate is 50 basis points below the reference rate.

The MAS Standing Facility has significantly reduced the volatility of inter-bank overnight interest rates. The effectiveness of the standing facility is illustrated by chart 12, which graphs the difference between the highest and lowest interest rate paid for overnight funds within each day. This spread measure of intra-day interest rate volatility decreased markedly after t he introduction of the MAS Standing Facility.

 
Chart 12: Difference between Daily Highest and Lowest Overnight Interest Rates