Parliamentary Replies
Published Date: 22 November 2010

Reply to PQs on Impact of US' Quantitative Easing

Question No ----621
Notice Paper No. 245 of 2010
Question No ----630
Notice Paper No. 246 of 2010
Question No ----608
Notice Paper No. 237 of 2010
For Oral Answer

Date: For Parliament Sitting On 22 November 2010

Name and Constituency of Members of Parliament
Sylvia Lim, Nominated Member of Parliament;
Teo Siong Seng, Nominated Member of Parliament;
Liang Eng Hwa, MP for Holland-Bukit Timah GRC


Q621 Sylvia Lim: To ask the Senior Minister what will be the expected impact on the Singapore economy arising from the US Federal Reserve's announcement on 3 November 2010 of  a "quantitative easing" of the US economy by US$600 billion.

Q630 Teo Siong Seng: To ask the Senior Minister if the recent decision by the US Federal Reserve to pump US$600 billion into the financial system will have any inflationary repercussions on the Singapore economy, especially in driving up our currency, stocks and property.

Q608 Liang Eng Hwa: To ask the Senior Minister (a) whether there has been a significant increase in capital inflows into the Singapore market in recent months; (b) whether the continued monetary quantitative easing in the US will lead to further capital inflows into Singapore and pose asset inflation risks; and (c) whether some form of control measures are necessary.


1. Mr Speaker, Sir, with your permission, I will take these three questions together and respond to them on behalf of Senior Minister Goh Chok Tong.

2. The US Federal Reserve, or the Fed, has recently embarked on further policy measures aimed at supporting the US economic recovery and coaxing  inflation back to the level that Fed policymakers consider consistent with healthy economic growth.  The Fed will ease monetary conditions by purchasing longer-term US Treasury securities, amounting to some US$600 billion by mid-2011. It will do so in phases, and will adjust the amounts as economic conditions change, so this is not about US$600 billion being released into the markets all in one shot.

3. The Fed’s latest round of monetary policy easing is not fundamentally different from its actions in 2008 -2009, when it purchased large amounts of securities although mainly of shorter maturities. Those actions had contributed to the stabilising of financial conditions in the US and globally, and supported the recovery from the crisis. The Fed hopes that the latest policy measure will lower longer term interest rates and stimulate economic activity - in particular by making housing more affordable, encouraging corporate investments and raising stock prices and consumer spending. Whether the Fed’s measure will be effective remains to be seen. But if the policy does succeed in stimulating a new cycle of growth in the US economy, or at very least in reducing the risks of a further slowdown in the US economy, it will be positive for Singapore and most other countries in the region. The US remains one of Asia’s largest trading partners, and the state of its economy is still a key concern.  

4. The basic reason why capital flows into Asia have increased, including into Singapore, has to do fundamentally with the very different stages of economic recovery being experienced in different parts of the world economy. Expansionary monetary policies in the industrialized economies, aimed at supporting their still fragile economic recovery and avoiding further escalation in financial market stresses, have led to record low interest rates.  In contrast, the Asian and emerging economies generally have rebounded strongly from the crisis, and have begun to tighten their macroeconomic policies.  The increase in capital flows to the region reflects these underlying divergences, notably the differences in prospects for both growth and inflation between the advanced and emerging economies. Capital has flowed to this part of the world in search of higher returns.

5. Policymakers in the region are fully aware of the risks posed by the increased capital flows. Much of it has comprised short-term investments rather than longer term, direct investments, and can hence be volatile and easily reversed.  In Singapore, the MAS had taken into account this volatility in global financial markets in its most recent monetary policy move in October, which involved a widening of the band in which the S$ exchange rate can fluctuate. 

6. The capital inflows are generally being intermediated efficiently through our domestic financial markets and banking system.  Nevertheless, we are closely monitoring the impact of capital flows on the economy and especially our asset markets.   We are not contemplating introducing capital controls, but will continue to rely on a range of policy tools to ensure that capital flows do not threaten financial stability or cause a property market bubble.

7. With our economic recovery more firmly entrenched, the government has been withdrawing the expansionary macroeconomic policies implemented during the crisis.  As members know, we have also introduced a series of preemptive measures since September 2009 aimed at promoting a more stable and sustainable property market.  These have had some calming effect on the market.  The government will continue to monitor the situation closely and take additional steps, if necessary, to ensure financial stability and sustainable asset markets.