Singapore’s macroprudential measures praised by IMF team
(14 May 2015 – Singapore) An International Monetary Fund (IMF) team led by Alex Mourmouras found that while Singapore’s economy continued to perform well, activity had been impacted by slow global recovery.
The team visited Singapore during 29 April – 12 May, to hold discussions in the context of the country’s 2015 Article IV Consultation.
Mourmouras said in a statement that the transitory effects of the shift to a growth model that relies less on new inflows of foreign workers, and the turning of credit and housing cycles.
“Bank lending growth has slowed as macroprudential measures have contributed to the welcome cooling of property markets and helped contain financial sector stability risks.
“The Monetary Authority of Singapore (MAS) has further strengthened its prudential framework with new limits on unsecured consumer lending.
“Singapore banks continue to boast high capital ratios and profitability and low nonperforming loans,” Mourmouras said.
Looking ahead, growth is expected to average about 2.5-3 percent in 2015.
The uncertain outlook could continue to weigh on private consumption and investment. However, the IMF team said several factors point at the likelihood of a broad-based recovery in domestic demand, including the gradual recovery in external demand, the expansionary budget, a less restrictive monetary policy stance, and lower energy prices.
These factors are expected to offset the drag from the continued moderate downward trend in real estate prices and rising interest rates.
Headline and core inflation are expected to average 0 and 1 percent in 2015, respectively, before both rising to 1.7 percent in 2016 on gradually recovering energy and commodity prices.
“The economic restructuring and shift to a growth model that relies less on foreign workers is well under way.
“The mission welcomes the increase in the labour force participation rate of women and older workers.
“In the mission’s view, the restructuring has led to a permanent increase in real wages relative to the cost of capital.
Mourmouras said the MAS’s current monetary policy setting is appropriate.
“A lower nominal effective exchange rate (NEER) appreciation bias than maintained during the past two years is warranted by the benign near and medium-term inflation outlook, moderate economic growth, and continued uncertainties in the external outlook.”
Inflation risks are circumscribed by the large and sustained oil price decline and its second-round effects and the continued moderation in house prices.
Global financial volatility could increase as the U.S. Federal Reserve normalizes its policy rate.
“Monetary policy vigilance and flexibility will continue to be in order in many countries, including Singapore.”
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