Singapore

Singapore[S$]

Institutional framework 1

The primary objective of Singapore's monetary policy is price stability for sustainable economic growth. Since 1981, Singapore's monetary policy has been centred on the exchange rate. This is because the exchange rate has a much stronger influence on inflation than the interest rate in a small and open economy such as Singapore, where gross exports and imports of goods and services are more than 300 percent of GDP, and almost 40 cents of every dollar spent domestically is on imports.

MAS manages the Singapore dollar against a basket of currencies of Singapore's major trading partners, and maintains it within an undisclosed target band. When necessary, MAS intervenes in the foreign exchange market to maintain the trade-weighted Singapore dollar exchange rate, also known as the SGD nominal effective exchange rate (SDG NEER), within the policy band, to ensure that it remains aligned with domestic price stability.

MAS' monetary policy formulation is undertaken by the Economic Policy Group (EPG). The EPG reviews monetary policy semi-annually (ie April and October), and recommends the appropriate level, slope and width for the exchange rate policy band to ensure consistency with domestic price stability. The review is approved by MAS' Monetary and Investment Policy Meeting. After each review, a Monetary Policy Statement is released, which provides information on the recent movements of the exchange rate and explains the exchange rate policy stance. An accompanying report, the Macroeconomic Review, provides detailed information on the assessment of macroeconomic developments and trends in the Singapore economy, and is aimed at enhancing market and public understanding of the monetary policy decision.

Key features of the monetary policy implementation framework

The Monetary and Domestic Markets Management Department (MDD) is responsible for monetary policy implementation. This includes managing: (i) the exchange rate through intervention in foreign exchange markets when necessary; and (ii) banking system liquidity through money market operations and liquidity facilities.

Intervention operations

MAS conducts foreign exchange intervention operations involving the sale or purchase of USD against the SGD to ensure that the SGD NEER is kept within the policy band, and is consistent with domestic price stability. The SGD-USD intervention is the preferred operation since this is by far the most liquid SGD currency pair traded.

Money market operations

Given Singapore's open capital markets and the exchange rate-centred monetary policy, interest rates in Singapore are largely determined by global interest rates and market expectations of the SGD exchange rate. Accordingly, MAS' liquidity management framework aims to ensure that there is an appropriate amount of liquidity in the banking system to meet banks' demand for precautionary, reserve and settlement balances, and in the process moderate excessive interest rate volatility.

Banks in Singapore maintain cash balances in their current accounts with MAS, and are required to maintain a Minimum Cash Balance (MCB) of 3% of their qualifying liabilities (two-week average computed with a two-week lag) on a two-week-average basis. Over the course of a business day, banks are allowed to utilise the full amount of their cash balances to settle payment obligations. However, they are required to maintain cash balances of at least 2% of their qualifying liabilities by the close of the business day. While the MCB requirement forms a base demand for cash balances, the total demand for reserves could vary across periods as banks may hold excess cash balances for other purposes such as settlement purposes.

MAS carries out money market operations every morning at about 9.45am. Money market operations are carried out exclusively with Primary Dealers in recognition of their role as specialist intermediaries in the Singapore Government Securities (SGS) and money markets. The instruments used are: (i) direct borrowing; (ii) foreign exchange swaps; (iii) repurchase agreements (repos) on SGS; and (iv) MAS Bills and 6-month Treasury Bills.

Liquidity facilities 2

MAS operates two liquidity facilities, the Intraday Liquidity Facility (ILF) and the Standing Facility (SF). While MAS conducts daily money market operations to manage the liquidity of the overall banking system, the liquidity facilities allow eligible financial institutions to fine-tune their intra-day liquidity as necessary. These liquidity backstops reduce volatility in overnight interest rates, and anchor market confidence that temporary shortfall in liquidity needs would be met.

The Intraday Liquidity Facility allows eligible counterparties 3 to obtain Singapore dollar funds on an intraday basis through repo transactions using SGS and MAS Bills. The facility is open from 9am to 5pm.

The Standing Facility allows eligible counterparties 4 to borrow Singapore dollar funds on an overnight and collateralised basis (from 5pm to 6.45pm), or deposit Singapore dollar funds on an overnight basis (from 6.00pm to 6.45pm).

Emergency Liquidity Assistance (ELA) 5

In extraordinary situations where financial institutions (FIs) come under liquidity stress, MAS is empowered by the Monetary Authority of Singapore Act to provide loans or advances to FIs to safeguard the stability of, or public confidence in, the financial system. MAS views ELA as the provision of short-term backstop SGD liquidity to address idiosyncratic or system-wide liquidity stress in extraordinary situations.

MAS expects to provide ELA to banks via two modes: (i) Market-wide ELA provision (this can take the form of a liquidity facility with standardised terms of access to address a sudden and system-wide seizing-up of funding markets); and (ii) Bespoke ELA provision (this relates to loans extended to one or a few domestic systemically important banks (D-SIBs) facing institution-specific liquidity stress.

2

More information on MAS' Liquidity Facilities can be found at: https://www.mas.gov.sg/monetary-policy/liquidity-facilities.

3

Definition of eligible counterparties can be found at: https://www.mas.gov.sg/monetary-policy/liquidity-facilities/mas-intraday-liquidity-facility.

4

Definition of eligible counterparties can be found at: https://www.mas.gov.sg/monetary-policy/liquidity-facilities/mas-standing-facility.

5

More information on Emergency Liquidity Assistance can be found at: https://www.mas.gov.sg/monetary-policy/emergency-liquidity-assistance.

Institutional setup of monetary policy decisions and operations

Policy decision body, size and composition Monetary and Investment Policy Meeting
Major mandates Price stability for sustained economic growth
Decision-making process Decision by the MIPM
Frequency / length of meetings Fortnightly
Frequency of announcements 2 times a year
Main policy target Nominal effective exchange rate
Monetary policy statement

Overview of key features

Key policy rate SGD Nominal effective exchange rate
maturity (days) spot
Operating target SGD Nominal effective exchange rate
maturity (days) spot
Standing facilities Lending, deposit
Corridor width (bp) 100
Reserve requirements Yes
maintenance period 2 weeks
Main operation FX intervention
functions Monetary policy implementation
maturity (days) Monetary policy implementation
regular interval Monetary policy implementation
frequency Monetary policy implementation
Overall frequency When necessary
Discretion left to operational desk Choice of size, tactics and timing of intervention.
Key policy signals via
announcement
keynote tender
standing facility
other

Monetary policy communication

Explicit use of forward guidance No
Timing / media of policy announcement Twice a year; MAS website
Policy announcement and documents SGD Nominal effective exchange rate policy stance
Explaining policy decisions Monetary Policy Statement (MPS)
Dissemination of minutes (timing / media) No
Content of minutes N/A
Publication of forecasts Growth and inflation forecasts accompany the MPS
Publication of projected path of policy rate No

Reserve requirements: ratios and size

Main functions served Liquidity management
Domestic currency 3%
Foreign currency
Average 3%
Required reserves SGD 13.6 bn
Required reserve as % of GDP 2.78%
Actual reserves SGD 23.6 bn
Actual reserve as % of GDP 4.81%

Main features of reserve requirements

Averaging Y
Carry-over N
Type Lagged
Maintenance period 2 weeks
end (day) Wed
Calculation period 2 weeks
end (day) Wed
Lag before maintenance 2 weeks
Vault cash N
restrictions
Remuneration N
average rate
marginal rate
Framework last changed 03/14

Liquidity position and forecasting

Structural Position Surplus
Most volatile factor(s) Public sector flows
Most unpredictable factor(s) Public sector flows and FX intervention operations
Forecast horizon(s) 3 months
Frequency Daily
Frequency of revision Daily
Forecast published? No

Standing facilities: lending / market ceiling

Name Standing Facility
Form Repo
Pricing method Reference rate + 50 bps
Maturity O/N
Access limited by/to Collateral; MEPS+ participating banks that have signed a GMRA with MAS.
Function(s) Limit interest rate volatility and prevent payment gridlock

Standing facilities: deposit / market floor

Name Standing facility
Form Deposit
Pricing method Reference rate less 50 bps
Maturity O/N
Access limited by/to MEPS+ participating banks
Function(s) Limit interest rate volatility

Open market operations: repo or reverse repo

Name/Type Repo and reverse repo
Maturity Up to 6 months
Frequency Daily, as needed
Pricing method Auction
Access limited by/to Primary dealers
Function(s) Liquidity injection and withdrawal

Open market operations: central bank bills

Name MAS bills
Total issuance SGD 123.7bn outstanding
Maturity 4 weeks, 12 weeks
Restrictions on possible maturities Up to 6 months
Pricing method Uniform price auction
Access limited by/to All institutional investors
Discretion left to operational desk Yes

Open market operations: FX swaps

Maturity Up to 6 months
Frequency Daily, as needed
Pricing method Auction
Access limited by/to Primary dealers
Function(s) Liquidity injection & withdrawal

Other significant liquidity management means

Name/Type (i) DB
(ii) 6 month treasury bills
Form (i) Overnight to term deposits
(ii) 6 months
Frequency (i) Daily, as needed
(ii) Fortnightly, as needed
Maturity (i) Up to 6 months
(ii) 6 months
Pricing Method (i) Auction
(ii) Auction
Access limited by/to (i) Primary dealers
(ii) Individuals and institutions
Function(s) (i) Liquidity injection and withdrawal
(ii) Liquidity injection and withdrawal

Settlement systems and intra-day liquidity facilities

Settlement system RTGS, since 1998
Intra-day liquidity facility Intra-day repo facility for all eligible MEPS+ participants that have signed a GMRA with MAS
Charge No charge unless otherwise announced
Foreign currency settlement system No
CLS participation by banks Yes
Other settlement system(s) Securities settlement system

Collateral

Standing facilities: List of eligible collateral 1. Singapore Government Securities
2. MAS Bills
3. SGD debt securities, including sukuk, issued by any Singapore statutory board and AAA-rated or AA-rated public sector entity, supranational, sovereign, sovereign-guaranteed company or non-financial company.
4. Foreign currency denominated securities and cash specified in a bilateral arrangement involving the provision of liquidity entered into between MAS and the foreign central bank or monetary authority.
Standing facilities: Discretion of central bank on collateral Yes
Open market operations: List of eligible collateral Singapore Government Securities, US dollars (FX swap)
Open market operations: Discretion of central bank on collateral Yes

Dissemination of operational information: liquidity forecast

Forecast published? No
Channel(s)
Timing
Remarks

Dissemination of operational information: open market operations

Volume and price published? Yes to Primary Dealers only – Direct borrowing; repo / reverse repo; FX swaps
Channel(s) Reuters FXT system
Timing Each morning

Dissemination of operational information: standing facilities

Lending facility usage: Channel(s) Rate published daily on MAS website
Lending facility usage: Timing Daily at 10.30 am
Deposit facility usage: Channel(s) Rate published daily on MAS website
Deposit facility usage: Timing Daily at 10.30 am

Other information dissemination

Type (i) FX operations (net purchase of foreign exchange on a six-month aggregated basis, and with a six-month lag from end of the period)
(ii) Review of MAS Money Market Operations
(iii) Issuance size and auction results of central bank bills
(iv) Outstanding FX swaps
Channel(s) (i) MAS website
(ii) MAS Macroeconomic Review
(iii) MAS website
(iv) MAS website
Timing (i) Every 6 months, starting from the second half of 2019
(ii) April and October
(iii) Upon issuance or announcement
(iv) Monthly