b1110
Challenges for the Singapore Economy
economic growth and were mostly associated with the liberalization of
the housing finance sector and, in particular, CPF regulations.
Conversely, downturns in house prices coincided with economic reces-
sions or the implementation of anti-speculation measures such as direct
credit controls. The quarter-on-quarter house price inflation rates range
from
−
14.1% to 15.8%, partly reflecting the rise and fall of foreign
investor interest in the Singapore property market.
Compared to house prices, stock prices in Singapore have a
higher average quarter on-quarter growth rate of 2.3%. As expected,
swings in stock price cycles are more pronounced with the growth
rates spanning a wider range of
−
43.1% to 42.8%. The cyclical behav-
ior in stock prices is related to business cycles as well as the ebb and
flow of foreign portfolio investment in the local stock market.
Should central banks react to bubbles using the instruments of
monetary policy?
One lesson from the present global financial crisis is that policy-
makers should not practice benign neglect in the face of asset price
bubbles. If the bubbles are big enough the result could be inflation
and then a fall in economic activity below desired levels which mone-
tary policy may not easily be able to rectify after the fact. Moreover,
not leaning against asset prices could be more harmful to the economy
Monetary Policy in Singapore and the Global Financial Crisis
159
0
20
40
60
80
100
120
140
160
180
200
1985Q1 1987Q1 1989Q1 1991Q1 1993Q1 1995Q1 1997Q1 1999Q1 2001Q1 2003Q1 2005Q1 2007Q1 2009Q1
0
20
40
60
80
100
120
140
160
180
Residential Property
Share Price Index
Figure 7:
Singapore residential property and stock price indices.
Source
: CEIC Database and International Monetary Fund International Financial Statistics.
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