Market forces decide interest rates: MAS

[Musicwhiz]

The Straits Times
Aug 19, 2011
Market forces decide interest rates: MAS
Current stance on exchange rate policy appropriate, says central bank

By Aaron Low

SINGAPORE'S central bank said yesterday it had not undertaken any extraordinary measures, as some had speculated, to keep interest rates ultra low.

The Monetary Authority of Singapore (MAS) said interest rates are determined by market forces here.

The speculation had been sparked by a historic turn of events in one of Singapore's main benchmark interest rates.

On Aug 10, the Swap Offer Rate (SOR) fell into negative territory for the first time, defying the usual state of affairs where at least some interest is paid for using funds.

This theoretically means bank customers are willing to pay the bank a fee for parking their money into short-term cash deposits rather than earn interest.

Traders and some analysts had speculated that the central bank, worried about possible rising inflation, wanted to discourage flows of cash into short-term deposits. It had done this, so the theory went, by intervening and pushing the SOR below zero.

The strengthening of the Singdollar in recent times has encouraged an inflow of funds, as investors hope to gain from currency appreciation.

Some also said that the negative SOR rate also signalled that the current exchange rate policy is likely to be changed for this reason.

In April, the MAS kept to its policy stance of allowing the Singapore dollar to continue appreciating against a basket of currencies, to help fight rising inflation.

Yesterday, the MAS effectively quashed rumours of an intervention in the domestic money markets.

'Singapore's domestic money markets continue to function in an orderly manner and MAS has had no need to undertake any extraordinary measures,' the central bank said in a statement.

The MAS noted that the recent volatility in global financial markets had pushed some investors to seek the safety of short-term deposits here.

Singapore is one of the few countries with a triple-A rating from credit rating agencies.

'This has been most evident in the forward markets. SOR is a derived rate for borrowing Singdollars in the forward market through a foreign exchange swap transaction. It has turned negative, reflecting market expectations of the exchange rate,' said the MAS.

It said that given Singapore's openness to capital inflows, domestic interest rates are strongly influenced by global liquidity conditions. Singapore interest rates have been low due to low global interest rates.

The central bank also said that its current stance on the exchange rate policy, which was announced in April, remains appropriate.

aaronl@sph.com.sg

[arthur]

Good and bad news.

NDOX arldy down 2.8% on a annual comparison, pretty sure the strong SGD has something to do with it, along with continuing and maybe(?) increasing weakness in Europe and US.

But strong SGD will hold up Singapore's image as she move towards a financial centre.
CNBC has a video clip ytdy by some forex analysts on the next safe haven currency after the Swiss Franc.

Guess which country's currency?

$SGD.

[freedom]

That SGD is safe has a lot to do with its smaller size. If big sharks like Soros come to attack SGD, SGD might not hold its safety as well.

[arthur]

If Soros wants to attack SGD, he would have done so, or maybe did in the Asian financial crisis in 1998.

We did not suffer badly as compared to the rest of Asian urrencies.
SGD depreciates against the major currencies due to much higher export oriented economy back then.

I am not aware how small size would deter speculators like Soros, instead of attracting them due to ease of doing so.

Cheers.

[freedom]

If Soros wants to attack SGD, he would have done so, or maybe did in the Asian financial crisis in 1998.

We did not suffer badly as compared to the rest of Asian urrencies.
SGD depreciates against the major currencies due to much higher export oriented economy back then.

I am not aware how small size would deter speculators like Soros, instead of attracting them due to ease of doing so.

Cheers.

how much can sharks like Soros win by attacking smaller currency like SGD? Also the control is higher when size is smaller. As for Asian Financial Crisis, I would say SGD was never the main target.