b1110
Challenges for the Singapore Economy
Consumer price inflation is now forecast to come in at around 2.5%
to 3.5% this year compared to 0.6% last year.
Figure 2 plots the 3-month Singapore interbank offer rate
(SIBOR), which captures global interest rates measured in US dollars,
and the 3-month Domestic Interbank Offer Rate (DIBOR) denomi-
nated in S$. Figure 3 plots the Domestic Liquidity Indicator (DLI),
which is a measure of overall liquidity conditions in Singapore com-
bining changes in the TWS$ and DIBOR. A rise in the index signals
a monetary tightening compared to the previous quarter.
82
Liquidity
tended to become tighter by the third quarter of 2007
as inflation-
ary pressures increased but interest rates subsequently fell sharply as
global rates were pushed down by central banks in response to the
credit crisis and monetary conditions in Singapore were broadly
accommodative (downward trend in the cumulative DLI) from
about August 2008 as the crisis unfolded. Only in mid-2009 did the
DLI begin to stabilize.
150
C. H. Kwan and P. Wilson
82
Note that when interest rates are fairly constant, as in 2009 and 2010, the DLI is
almost entirely driven by changes in the TWS$.
2005
5
4
3
2
1
2006
2007
2008
2009
2010
3-Month
US Dollar SIBOR
3-Month Singapore Dollar DIBOR
Figure 2
:
Interest rates in Singapore 2005–2010.
Source
: Monetary Authority of Singapore financial database, mas.gov.sg.
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