Macroeconomic and Financial Stability

Price Stability

Price Stability

In April 2018, MAS took a step towards monetary policy normalisation by increasing slightly the slope of the Singapore dollar nominal effective exchange rate (S$NEER) policy band, with no change to its width or the level at which it was centred. MAS made a further slight increase in the slope of the S$NEER policy band in October 2018.

In April 2019, MAS kept unchanged the policy stance that was adopted in October 2018. 

  • Global economy: The world economy showed signs of stabilising in early 2019 after a sharp slowdown around the turn of the year, but the recent re-escalation in trade tensions has added to downside risks. The balance of risks remains tilted to the downside, and manufacturing and exports remain generally weak. As such, the world economy is expected to grow more slowly in 2019 than in 2018. Meanwhile, global inflation has remained benign amid muted demand-side pressures.
  • Singapore economy: Against a more subdued external backdrop, the Singapore economy grew at a slower but still firm 3.1% in 2018, from 3.7% in the previous year. In 2019, Singapore faces stronger headwinds, as the negative impact of the maturing economic and tech cycles become more evident. Following two years of above potential growth, the Singapore economy is expected to grow at the slower pace of 1.5–2.5% in 2019.
  • Inflation: In 2018, MAS Core Inflation increased modestly to 1.7% from 1.5% in the previous year. This came amid continued improvement in the labour market, while underlying price pressures remained in check. For 2019, MAS Core Inflation is expected to come in within the forecast range of 1–2%. Meanwhile, CPI-All Items inflation is expected to average 0.5–1.5% in 2019. This is higher than the 0.4% recorded in 2018, reflecting the more gradual decline in accommodation and private road transport costs compared to 2018.
  • Monetary policy: The April 2018 exit from the flat (i.e., zero percent appreciation) policy band, which had been in place since April 2016, was assessed to be appropriate as the Singapore economy was on track for a steady expansion in 2018 and mild upward pressures on core inflation were expected given the improvement in the labour market. The further increase in the slope of the policy band, consistent with a modest and gradual appreciation path of the S$NEER policy band, was carefully calibrated against the backdrop of persistent uncertainties in the external environment. With inflationary pressures expected to be contained, the unchanged policy stance in April 2019 will keep the economy close to potential and ensure medium-term price stability in the Singapore economy.

 

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Financial Stability

Financial Stability

On 5 July 2018, the Government raised the Additional Buyer’s Stamp Duty (ABSD) and tightened the loan-to-value ratio (LTV) to moderate the property market cycle. Following the measures, price growth and transaction activity have moderated.

  • Globally, risks to financial stability remain elevated, amidst high debt levels, especially in key Emerging Market Economies (EMEs). A sudden negative shift of investor sentiment could cause an abrupt reversal of portfolio outflows from EME, tighten financial conditions and weigh on economic growth.
  • On the domestic front, Singapore’s banking system, corporate and household fundamentals remain resilient, although continued vigilance is warranted as uncertainties in the external environment persist. As reported in the Financial Stability Review 2018, the countercyclical capital buffer rate remains at 0% as MAS assessed that domestic credit growth kept in line with economic conditions.
  • In July 2018, the Government raised the ABSD and tightened the LTV ratio to moderate the property market cycle. The measures came on the back of a pick-up in the rate of private residential property price increases and transaction volumes, which if left unchecked could run ahead of economic fundamental and raise the risk of a destabilising correction later.
  • Following the July 2018 measures, price growth as well as transaction activity have moderated, with prices of private residential property declining gradually by 0.7% between Q3 2018 and Q1 2019.

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MAS established a bilateral financial arrangement of US$10 billion equivalent with Bank Indonesia (5 November 2018)
The bilateral financial arrangement, which will be in place for one year, comprises a new local currency bilateral swap agreement of US$7 billion equivalent and an enhanced bilateral repo agreement of US$3 billion, an increase from the previous size of US$1 billion.

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Renewal of the Bilateral Currency Swap Arrangement (BCSA) between PBC and MAS
(10 May 2019)
PBC and MAS renewed the BCSA to strengthen regional economic resilience and financial stability. Under the arrangement, PBC and MAS can access foreign currency liquidity to support trade and investment financing needs, including projects under the Belt and Road Initiative, and to stabilise financial markets.  This renewal will be for a period of three years.

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Reserve Management

Reserve Management

MAS held S$400.7 billion (US$295.8 billion) of Official Foreign Reserves (OFR) as at 31 March 2019.

Size and Composition

  • The OFR is invested in a well-diversified portfolio of cash, bonds and equities that aims to provide good long-term returns while being resilient across market conditions.
  • The portfolio is also diversified across advanced and emerging market economies, and across different currencies.
  • Investment-grade bonds in the advanced economies form the largest allocation in the portfolio.
  • About three-quarters of the OFR are denominated in USD, EUR, JPY and GBP, with USD forming the bulk.

Investment Performance

  • The rolling 10-year investment performance of the OFR is shown in Chart 1.
  • The gains/losses of OFR Gross of investment, interest and other expenses. , as represented by the dark red lines, comprise two separate components – investment gains/losses (blue bars) and currency translation effects (yellow bars).
  • In FY2018/19, the total gain of OFR was S$26.2 billion, comprising investment gains and positive currency translation effects.
  • Global markets were volatile in FY2018/19. Markets generally declined in the earlier periods of the year but rebounded strongly in the last quarter that ended on 31 March 2019. The OFR recorded an investment gain of S$25.2 billion in FY2018/19.  As in previous years, the investment gain was mainly from interest income and realised capital gains, and was similar in magnitude to the prior two financial years of around S$22 billion.
  • In FY2018/19, the currency translation effect amounted to S$1.0 billion due primarily to a weakening of the SGD against the USD. This was offset by the strengthening of the SGD against the other major currencies including the EUR and the GBP.
Chart 1: Gains/Losses of OFR   

Risk Management

  • MAS’ Board approves the investment universe and risk management framework.
  • Investments are subject to risk limits and controls, and MAS conducts stress tests regularly to manage financial risks. 
  • MAS monitors investment risks closely and reports them regularly to MAS’ Board and Risk Committee. If required, MAS will undertake risk mitigating actions.

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Currency Operations

Currency Operations

The Currency Amendment Bill was passed in Parliament (14 January 2019)

The legal tender limits for coins under the Currency Act were streamlined to a uniform limit of 20 coins per denomination in a single payment. This means that a payer can use up to 20 pieces each of 5-cent, 10-cent, 20-cent, 50-cent and one-dollar coins per transaction. Compared to the previous limits, the new limit is simpler and easier to remember, bringing convenience to users. The legislation took effect on 14 March 2019.

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MAS issued a Singapore Bicentennial Commemorative Note (5 June 2019)

MAS issued a $20 note to commemorate Singapore’s Bicentennial. The note depicts Singapore’s long journey to nationhood and pays tribute to our forebears who contributed in diverse fields and laid the foundations for modern Singapore. Two million pieces of notes were made available for public exchange at face value at major retail banks in Singapore. 5,000 numismatic sets were also available for sale.

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Singapore Bicentennial Note:


Regional Meetings and Initiatives

Regional Meetings and Initiatives

As Chair of ASEAN in 2018, Singapore hosted and chaired the 4th ASEAN Finance Ministers’ and Central Bank Governors’ Meeting (AFMGM) and Related Meetings (3 to 6 April 2018)
Singapore’s initiatives under the finance pillar to sustain growth, boost resilience and foster innovation received broad support from ASEAN member states. ASEAN committed to: (a) accelerate infrastructure development and financing through mobilising private capital; (b) strengthen private market financing opportunities for promising ASEAN growth enterprises; (c) strengthen natural disaster resilience; (d) facilitate information sharing on cyber threats and incidents to strengthen cyber situation awareness and resilience; and (e) enhance regional fast payment system linkages in ASEAN.
Singapore co-chaired the 21st ASEAN+3 Finance Ministers’ and Central Bank Governors’ Meeting (AFMGM+3) with Korea in 2018 (4 May 2018)
To further promote regional financial stability, the ASEAN+3 Finance Ministers and Central Bank Governors endorsed the first periodic review of the Chiang Mai Initiative Multilateralisation (CMIM) Agreement to enhance the operational effectiveness of the CMIM. 

Singapore participated in the 5th ASEAN Finance Ministers’ and Central Bank Governors’ Meeting (AFMGM) and Related Meetings, hosted by Thailand (2 to 5 April 2019)
Building on Singapore’s ASEAN chairmanship priorities in 2018, the 5th AFMGM underlined its commitment to accelerate infrastructure development and financing in ASEAN through the mobilisation of private capital, advocated regional cooperation on cybersecurity information-sharing; and looked forward to the live-operation of the Singapore (PayNow) - Thailand (PromptPay) real-time retail payment system linkage by the first half of 2020. ASEAN’s progress in financial services liberalisation was marked by the signing of the Protocol to implement the Eighth Package of Commitments on Financial Services under the ASEAN Framework Agreement on Services (AFAS).

Singapore participated in the 22nd ASEAN+3 Finance Ministers’ and Central Bank Governors’ Meeting (AFMGM+3) and Related Meetings in Fiji (2 May 2019)
The meeting welcomed the successful conclusion of the first Chiang Mai Initiative Multilateralisation (CMIM) Periodic Review and approved the amended CMIM Agreement which will come into force after ratification by members.

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