Monetary Policy in Singapore and the Global Financial Crisis

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b1110

Challenges for the Singapore Economy

better alternatives and monetary policy may not be the most effective

or the most precise instrument. For instance, if the surges in asset val-

uations are confined to particular sectors (or cities) or are the result of

productivity improvements, directed prudential policies, such as vary-

ing the ceiling in loan-to-value ratios, may be more appropriate.

This seems to be the view of the MAS according to its Managing

Director Heng Swee Kiat:

“In our case because we are also a regulator, we don’t think we should use

monetary policy in a blunt way. Monetary policy should respond to the real

economic conditions going forward. And so we need to keep a very clear

focus on using monetary policy to anchor inflation expectations and make

sure we don’t use it for more than we can deliver.”

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As well as the Ministry of Finance:

“The government will respond to the property bubble “in a calibrated fash-

ion to prevent boom and bust in the property market. It won’t involve

macro levers such as interest rates since they apply across the board to busi-

nesses at large not just to asset markets so and risk engendering a slump. So

Use credit rules, land supply decisions and, in the extreme, tax policies. It is

also difficult to monitor 4–5 years ahead.”

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In the third quarter of 2009, a 16% surge in property prices in

Singapore persuaded the government to release more land for devel-

opment and disallow borrowers from deferring property payments. In

February 2010 further measures were introduced to cool the property

market, following a spike in the sales and prices of private new homes

in the form of an additional 3% stamp duty if a property is sold within

one year of purchase and lending institutions (apart from the Housing

Board) were now only allowed to lend up to 80% of the purchase price

instead of 90%. By working directly on lending margins and counter-

ing speculative purchasing directly there was seen to be no need for

aggressive monetary policy, particularly at a time when the economic

outlook was still uncertain, as was the case in early 2010.

Monetary Policy in Singapore and the Global Financial Crisis

163

94

Heng (2009) according to 

The Wall Street Journal’s

Real Time Blog on October 21,

2009.

95

Shanmugaratnam (2009b).

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