Comments by the MAS Spokesperson on Recent Market Movements in the SOR

In response to media queries on recent market movements in the SGD Swap Offer Rate (SOR), the MAS spokesperson reiterated that interest rates in Singapore are market-determined and that the current monetary policy stance, announced in April 2011, remains appropriate.

2   “Singapore’s monetary policy framework is based on managing the trade-weighted exchange rate. This means that, given the economy’s openness to capital flows, domestic interest rates are strongly influenced by global liquidity conditions. SGD interest rates have been low for some time due to historically low global interest rates. The major economies are keeping monetary policy loose for a sustained period in the face of a weak recovery from the 2008-09 recession. The US Federal Reserve for example has recently pledged to keep its policy rate close to 0% until mid-2013.

3   Recent volatility in global financial markets has caused some investors to seek the safety of short-term cash deposits.  This has been most evident in the forward markets. SOR is a derived rate for borrowing SGD in the forward market through a foreign exchange swap transaction. It has turned negative, reflecting market expectations of the exchange rate.

4   Singapore’s domestic money markets continue to function in an orderly manner and MAS has had no need to undertake any extraordinary measures.  The monetary policy stance remains as that announced in the April 2011 Monetary Policy Statement (MPS), which was reaffirmed at the MAS Annual Report Press Conference on 21 July 2011. The next MPS will be released as scheduled in mid-October 2011.”

***