Parliamentary Replies
Published Date: 14 January 1998

Parliamentary Question on Rising Interest Rates

Parliamentary question on rising interest rates

Date: For Parliament Sitting on 14 Jan 98

To ask the Deputy Prime Minister what is the impact of rising interest rates on the economy.

1.  MAS does not expect the recent rise in interest rates to hurt the Singapore economy significantly.  Our corporate and household debt are both quite low. An MAS study has found that the debt-to-equity ratio of 181 companies1 listed on SES was 40% in 1996, compared with 220% for the top 20 listed Korean companies2. Household debt repayment burden, i.e. the proportion of personal disposal income used to service debt payments including both interest and principal, was 25% in 1996.  At these levels of indebtedness, a 1-2% point increase in interest rates will not significantly impair corporate profitability nor increase household debt burden.

1 Our sample does not include the MNCs which are not listed in Singapore.The exclusion, however, should not matter as MNCs in Singapore usually depend on external sources of financing and will not be affected by movement of lending rates here. Our sample also does not include finance companies and banks as these institutions are, by nature of their business, highly leveraged and sensitive to interest rate movements.

2 Source:  David Roche, "South Korea's Economic Crisis is Set to Get Worse".  International Herald Tribune, 6 Nov 1997.

2.  Higher interest rates will tend to depress asset values, such as share and property prices.  Households which have over-extended themselves, particularly those who have borrowed excessively to finance share purchases or buy properties, will face difficulties.  But the larger impact on our share and property market, and the main challenge now facing our economy, is the continuing economic crisis in the region.