Money Markets: Staying Vigilant
As events in global money markets unfolded in the second half of
2007, major central banks including the Federal Reserve Bank, the
European Central Bank and the Bank of England moved swiftly to
alleviate liquidity stresses and reassure markets by injecting liquidity.
Money markets in Asia remained relatively less susceptible to the global
tightening in liquidity conditions. Money market participants in Asia
were by and large less vulnerable to liquidity stresses as a high rate
of savings enabled banks to balance their profile between a stable
deposit base and funding from the interbank market. MAS stayed in
close contact with key banks, gathering up-to-date feedback of market
conditions and sentiment, and ensured credit lines between banks
were not strained. MAS heightened monitoring based on the systemic
studying of a range of indicators from currency movements to equities
indices, changes in the profile of yield curves and forward pricing, so
as to anticipate possible developments that might ensue.
To reassure markets, MAS issued a statement in August 2007 to state
that we had been monitoring the financial markets closely for potential
liquidity bottlenecks, and that while no extraordinary liquidity injections
had to be made, MAS stood ready to inject liquidity if necessary.
Chart 8 shows the one-month Singapore Dollar (SGD) Singapore
Inter-Bank Offer Rate (SIBOR) and US Dollar (USD) London Interbank
Offered Rate (LIBOR) deposit rates during key episodes of funding
stress, where interbank interest rates in Singapore remained stable
amidst volatility in global money markets. The Singapore Dollar market
encountered less turbulence with minimal increases in interest rates
in August to September and November to December 2007. This was
an encouraging reflection of the confidence market participants had
in the Singapore Dollar market, and reflected the absence of significant
interbank market squeezes for the period.