Parliamentary Replies
Published Date: 02 August 2023

Oral reply to Parliamentary Questions on implications of strong Singapore Dollar on MAS' losses

Date: For Parliament Sitting on 2 August 2023

Names and Constituencies of Members of Parliament

Ms Hazel Poa, NCMP

Assoc Prof Jamus Jerome Lim, Sengkang GRC

Mr Don Wee, Chua Chu Kang GRC


Ms Hazel Poa: To ask the Prime Minister what were the benefits of a strong Singapore dollar policy that recorded S$30.8 billion in losses last year by the Monetary Authority of Singapore.

Assoc Prof Jamus Jerome Lim: To ask the Prime Minister how much of the reported losses by MAS for FY 2022/2023 are attributable to (i) losses from currency interventions (ii) changes in valuation (iii) investment exposures and (iv) other sources.

Mr Don Wee: To ask the Prime Minister in order to maintain a strong Singapore dollar policy and to curb losses, whether MAS has plans to increase the interest yields and payments of its Treasury Bills and bonds so as to encourage a higher level of savings.

Answer by Mr Alvin Tan, Minister of State, Ministry of Trade and Industry and Ministry of Culture, Community and Youth, and Board member of MAS, on behalf of Mr Lawrence Wong, Deputy Prime Minister and Minister for Finance, and Chairman of MAS:

1. Mr Speaker, my response will cover the questions raised by Ms Hazel Poa, Assoc Prof Jamus Lim and Mr Don Wee in today’s Order Paper, as well as Mr Yip Hon WengPQ from Mr Yip Hon Weng filed for Parliament Sitting on or after 3 August: To ask the Prime Minister (a) how does MAS strike a balance between managing inflation and incurring losses to do so; (b) whether such losses are anticipated; (c) whether there are plans to broaden the basket of currencies in which the official foreign reserves are held; (d) what strategies does MAS have to generate future profits that will surpass the cumulative losses of S$38.2 billion in the last two financial years; and (e) how will MAS’ losses impact Budget 2024. filed for tomorrow’s Sitting. If Mr Yip is satisfied with the response, he may wish to withdraw his question after this session.

2. Assoc Prof Jamus Lim asked about the components of the net loss, including from MAS’ currency intervention. MAS had explained in detail the constituents of its reported financial loss at its annual press conference in July, which I will reiterate here.

3. About 70% of the net loss was due to the negative currency translation effects of a stronger Singapore Dollar. This is not due to currency intervention. The negative currency translation effects arise because the Official Foreign Reserves (OFR) are held in foreign currencies but reported in Singapore Dollars. A stronger Singapore Dollar will therefore result in a lower value for the OFR when expressed in Singapore Dollar terms. This currency translation effect does not have any bearing on the external purchasing power of the OFR or on MAS’ ability to conduct monetary policy.

4. The remaining 30% of the net loss was due to net interest expenses from MAS’ money market operations to mop up excess liquidity in the banking system. The net interest expense incurred on MAS’ money market operations to mop up excess liquidity in the banking system was unusually large in the last FY due to two factors: the large volume of operations and high interest rates. The high volume of money market operations was necessitated by MAS’ interventions in the foreign exchange market to moderate the appreciation of the Singapore Dollar. As MAS explained earlier, had it not done this, the Singapore Dollar would have been too strong and hurt the economy. While this currency intervention added substantially to our OFR, it created excess Singapore Dollar liquidity in the domestic banking system which MAS had to remove and incur an interest expense in the process.

5. Mr Don Wee asked if MAS plans to increase the interest yields and payments of Treasury Bills and bonds to curb losses and encourage a higher level of savings. Such instruments are issued by the Government and not MAS. The interest rates payable on such instruments are not determined by MAS but are market-determined via auctions. As the interest rates of such instruments have increased in tandem with global interest rates, we have already seen a healthy pick-up in demand by the public.

6. Mr Yip Hon Weng asked whether there are plans to broaden the basket of currencies in which the OFR are held. The OFR is already held in a diverse range of currencies. As long as the Singapore Dollar appreciates against these currencies, there will be negative currency translation effects. In the last FY, the Singapore Dollar appreciated against every major currency. As explained earlier by MAS, the effects of a stronger Singapore Dollar cannot be hedged or diversified away.

7. Let me now respond to Members’ questions on monetary policy. Ms Hazel Poa asked about the benefits of a strong Singapore Dollar in view of the financial loss recorded by MAS. The appreciation of the Singapore Dollar last year reflected the outcome of MAS’ tighter monetary policy to dampen inflation. This policy has been successful in curbing imported inflationary pressures. Between May 2022 and June 2023, Singapore’s import price index had fallen by some 14%. This decline in import prices has in turn contributed to lower domestic inflation. On a month-on-month seasonally adjusted annualised basis, MAS Core Inflation fell from its peak of 9.1% in June 2022 to 2.2% in June 2023.

8. Mr Yip asked how MAS strikes a balance between managing inflation and incurring losses, and whether these losses are anticipated. MAS’ monetary policy is focused purely on keeping inflation low and ensuring medium-term price stability. It does not take into account any potential impact on MAS’ profits; to do so would undermine its mission. This is similar to how other major central banks conduct monetary policy. Many of them have also reported losses arising from their monetary policy operations. MAS’ financial performance is a necessary consequence of its conduct of monetary policy.

9. The OFR is key in enabling MAS to conduct effective monetary policy. As a central bank, MAS adopts a conservative approach in its investments, with a significant proportion of its portfolio invested in liquid financial market instruments. Through a well-diversified portfolio and careful risk management, MAS expects to earn good long-term returns that are commensurate with its risk profile.

10. Finally, let me turn to Mr Yip’s question about the impact of MAS’ net loss on the Government’s budget position. MAS contributes to the Government’s budget in two ways. First, under the Net Investment Returns (NIR) framework, the Government can spend up to 50% of the expected long-term real return on the net assets invested by MAS, GIC, and Temasek. The NIR is based on the long-term expected returns of these entities, and hence is not affected by their short-term performance. Accordingly, MAS’ reported net loss in the last FY has no impact on the NIR that is available to the Government.

11. Second, similar to other Statutory Boards, MAS makes contributions to the Government’s Consolidated Fund in lieu of corporate income tax. This is based on 17% of the net profit for the year after offsetting cumulative losses from previous financial years. The Government recognises that MAS contributions will vary considerably from year to year and has therefore smoothened the revenue volatility by requiring the annual contributions made by MAS to be paid in equal proportions over a period of three years.

12. Given the net loss in FY22/23, MAS will not accrue a contribution to the Government’s Consolidated Fund for FY22/23. Nonetheless, MAS will still make a contribution of S$0.4 billion to the Government’s Consolidated Fund in the current financial year, based on past profits. The smoothening formula has thus helped to mitigate the impact of MAS’ net loss on the Government’s budget.

13. In sum, MAS’ overarching mandate is to ensure macro-economic stability. As DPM Lawrence Wong stated in this House on 1 August 2022, the Government does not expect MAS to deviate from its mandate to maximise its contributions to the Budget. MAS’ monetary policy has helped to deliver broad macroeconomic stability for over four decades, as the basis for sustained economic growth and increases in real incomes for Singaporeans.