The Monetary Authority of Singapore (MAS) performs two key roles as Singapore’s central bank and as the regulatory authority for the financial sector. As such, it has immense power to support Singapore’s economy, protect the value of the Singapore Dollar, and develop a vibrant financial eco-system.
Here’s a look at the recently-released MAS Annual Report 2019/2020, and some key highlights about Singapore’s economy and policy stances MAS will be taking in the near future.
#1 Economic Impact Of COVID-19: Different Industries Affected To Varying Degrees
MAS notes that the global economy has contracted nearly 14% quarter-on-quarter in the first quarter of 2020 – this is almost three times deeper than the sharpest decline seen during the Global Financial Crisis.
The expectation is that the contraction in the second quarter will be even deeper, as this is when economies outside China were most severely affected by the virus and shutdown measures. Overall, MAS expects the global economy to contract by an estimated -5.5% in the first half of the year followed by a slight growth by 3.5% in the second half of this year.
Closer to home, Singapore is going through its most severe recession since our independence. MAS expects Singapore’s economy to experience a full-year contraction in 2020, with GDP growth projected at –7 to –4%. 12% of the economy bear the brunt of the COVID-19 induced recession.
Industries that are most severely affected are: construction which accounts for about 4% of GDP, travel-related industries (comprising air transport, accommodation, arts, entertainment and recreation) which also accounts for about 4% of GDP and consumer-facing domestic services (comprising retail, food services and land transport) account for another 4% of GDP. Manufacturing and electronics industries are affected to a lesser degree while the modern services cluster – comprising financial, ICT, and professional services – is the least affected.
#2 Inflation Is Expected To Remain Low
Inflation in Singapore continues to be low, with MAS Core Inflation at 1.0% in 2019. Both MAS Core Inflation and CPI-All Items inflation are expected to turn negative, averaging between -1 to 0% this year.
Prices have not increased significantly in most categories even as GDP growth declined and global oil prices fell. Barring supply disruptions, externally-driven inflation, including oil prices, will remain low.
#3 Exchange Rates Will Remain Stable
MAS has set the policy band for the nominal effective exchange rate on a 0% appreciation path, starting from the prevailing lower level of the exchange rate.
The lower starting level was consistent with the downshift in inflation, while keeping the exchange rate on a steady path provides for stability amid the slump in economic activity.
This means that our foreign exchange rate will remain stable, and the Singapore Dollar will not move much against other major currencies such as the US Dollar, British Pound, Euro or Japanese Yen.
#4 No Immediate Plans To Loosen Property Cooling Measures
According to MAS, the property market has remained stable, in part to the macroprudential measures in place and new temporary relief measures in response to COVID-19. There is no expectation to change the existing property cooling measures.
To further promote market stability, the government has provided temporary relief measures for buyers and property developers by extending regulatory and tax deadlines. These reliefs do not alter the existing cooling measures.
Because the government is unlikely to lift the property cooling measures in the near future, property investors should not expect changes to measures like Additional Buyers’ Stamp Duty requirements.
#5 MAS’ Continue Role In Ensuring Liquidity In The Financial System
In a recession, credit liquidity is important, and MAS has introduced several measures to ensure that businesses have access to affordable credit. This includes introducing a Singapore Dollar Facility to provide very low-cost funding to banks and finance companies, aimed at supporting businesses under the Government’s risk-shared loan schemes under Enterprise Singapore. The government underwrites most of the risk of lending while the central bank provides low-cost funding, and the banks decide who to lend to based on their credit assessment.
Similarly, for individuals, the need for credit liquidity is important during recession and you should consider financial moves to free up your cash flow during this time. This could include deferring your loan payments, refinancing your mortgage and reviewing your insurance premiums.
DollarsAndSense.sg aims to provide interesting, bite-sized and relevant financial articles.
Learn together with like-minded Singaporeans at the Personal Finance Discussion SG Facebook Group by discussing a range of personal finance topics.
If you have not done so, subscribe to our free e-newsletter to receive exclusive content not available anywhere else.