Singapore
Singapore[SGD]
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 (SGD 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.
1
More information on Singapore's monetary policy can be found at:
https: //www.mas.gov.sg/publications/monographs-or-information-paper/2013/monetary-policy-operations;
https: //www.mas.gov.sg/monetary-policy/Singapores-Monetary-Policy-Framework/faqs.
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 (MIPM) |
|---|---|
| Major mandates 1 | Price stability for sustained economic growth The principal objects of MAS are stated under clause 4(1) of the Monetary Authority of Singapore Act MAS' monetary policy decisions and operations are carried out independently from the Government |
| 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 |
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 2 | 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 | √ 3 |
| keynote tender | √ 4 |
| standing facility | √ 5 |
| other | √ 6 |
Monetary policy communication
| Explicit use of forward guidance | Yes. Forward guidance has been used occasionally 7 |
|---|---|
| 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 8 | Growth and inflation forecasts accompany the MPS |
| Publication of projected path of policy rate 9 | No |
Reserve requirements: ratios and size
| Main functions served | Liquidity management |
|---|---|
| Domestic currency | 3% |
| Foreign currency | – |
| Average | 3% |
| Required reserves | SGD 21.5 bn 10 |
| Required reserve as % of GDP | 4.24% |
| Actual reserves | SGD 27.1 bn 11 |
| Actual reserve as % of GDP | 5.34% |
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 12 |
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 + 50bps 13 |
| 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 50bp, floored at zero 14 |
| 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 15 | 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 | (i) MAS Bills (ii) MAS Floating Rate Note (FRN) |
|---|---|
| Total issuance | (i) SGD 115.3bn outstanding (ii) SGD 4.3bn outstanding 16 |
| Maturity | (i) 4 weeks, 12 weeks (ii) 6 months |
| Restrictions on possible maturities | (i) Up to 6 months (ii) NA |
| 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 | Multiple price auction |
| Access limited by/to | Primary dealers |
| Function(s) | Liquidity injection & withdrawal |
Other significant liquidity management means
| Name/Type 17 | (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) Multiple price auction (ii) Uniform price 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 18 | Yes |
| Open market operations: List of eligible collateral | Singapore Government Securities, US dollars (FX swap), MAS Bills, Treasury Bills |
| Open market operations: Discretion of central bank on collateral 19 | Yes |
Dissemination of operational information: liquidity forecast
| Forecast published? | No |
|---|---|
| Channel(s) | NA |
| Timing | NA |
| Remarks | NA |
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 20 |
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 three-month lag from end of the period) (ii) Review of MAS Money Market Operations (iii) Issuance size and auction results of central bank bills and treasury 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 |
1 Describe as well the legal status of the mandate and involvement of government
2 RP = reversed purchase (repo, inject liquidity), RS=RRP=reversed sale (reverse repo, absorb liquidity), RT=reversed transaction (repo or reverse repo).
3 Monetary Policy Statement released twice a year.
4 Monetary Policy Statement released twice a year.
5 Monetary Policy Statement released twice a year.
6 Monetary Policy Statement released twice a year.
7 MAS also provides guidance on the appropriate level of the S$NEER within the policy band at times (See for instance, the press statement "Comments by MAS on the Monetary Policy Stance" released on 5 February 2020.)
8 For instance, economic and inflation forecasts related to policy decision.
9 If applicable, describe the publication of any fan-charts or uncertainty bands around the forecasts/projections.
10 Required and actual reserves with MAS as of 4 December 2020.
11 Required and actual reserves with MAS as of 4 December 2020.
12 Change in definition of cash balance.
13 The reference rate is the weighted average of successful bids for MAS’ SGD 500 m overnight clean borrowing conducted during Money Market Operations on the same day, rounded to two decimal places.
14 The reference rate is the weighted average of successful bids for MAS’ SGD 500 m overnight clean borrowing conducted during Money Market Operations on the same day, rounded to two decimal places.
15 RP=Reversed purchase (“repo”), RS=RRP=Reversed Sales (“reverse repo”), RT=Reversed transaction (RP or RRP).
16 As of 11 December 2020
17 OT = Outright Transaction, DB = Direct Borrowing, DL = Direct Lending.
18 Discretion of the central bank to expand collateral types, and list of additional collateral types that the central bank can take on a discretionary basis. Also, additional information such as delays required if discretionary collateral changes.
19 Discretion of the central bank to expand collateral types, and list of additional collateral types that the central bank can take on a discretionary basis. Also, additional information such as delays required if discretionary collateral changes.
20 Issuances of 6-month T-bills and MAS bills are announced on a fixed schedule in advance on the MAS website, as are the results of 6-month T-bills and MAS bills auctions.