b1110
Challenges for the Singapore Economy
foreign exchange operations.
80
Since the money markets continued
to operate normally in Singapore there was no need for the MAS to
actually provide extra liquidity. In central banking jargon ‘no
extraordinary measures have been needed’. In any case it could not
do so since its money market operations are the endogenous result
of its need to keep the TWS$ within its targeted policy band.
Interpreted in this way, Singapore’s monetary policy response to
the global crisis was to provide any needed liquidity within the TWS$
policy band and to loosen monetary (exchange rate) policy. By the
end of 2007 MAS had progressively tightened policy in response to
increasing domestic and external inflationary pressures by increasing
the slope of the TWS$ policy band (Figure 1) and policy was further
148
C. H. Kwan and P. Wilson
2005
2006
2007
2008
2009
2010
100
102
104
106
108
110
Index Janauary 1999=100
Figure 1:
The Trade-Weighted Singapore dollar 2005–2010.
Source
: Monetary Authority of Singapore financial database, mas.gov.sg.
80
For example, when liquidity is drained from the banking system by government
budget surpluses or a rise in
net contributions to the CPF, MAS may use money mar-
ket operations, such as open market purchases of government bonds, to inject liquidity
back into the money market and keep domestic interest rates stable. Sterilization is not,
it seems, an automatic response to neutralize its own forex market operations but
depends on the balance of other factors affecting money market liquidity at the time.
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