Monetary Policy in Singapore and the Global Financial Crisis

Do Not Distribute Without Permission

Copyright © 2020 IG Publishing Pte Ltd. All Rights Reserved

Do Not Distribute Without Permission

---

b1110

Challenges for the Singapore Economy

Special Risk-Sharing Initiative (SRI) to co-share risks with the banks

and stimulate bank lending and ensure that a broader segment of

companies had access to credit to sustain their operations. In addi-

tion, to reduce the cost burden and ease the cash flow of businesses,

a number of tax measures were introduced including a 40% property

tax rebate for industrial and commercial properties and a reduction

in the corporate income tax rate. To address longer-term structural

issues the government pressed ahead with investment in infrastruc-

ture, education, healthcare and research and development. These

investments stimulate aggregate demand in the short-run but 

have the added merit that they also produce some longer-term

social return.

As far as monetary policy specifically is concerned, the priority

in Singapore, as in other countries in the region was to ease mone-

tary policy, increase liquidity and prevent a mass withdrawal of

deposits. Bank deposits were fully guaranteed until 2010 and the

MAS arranged a US$30 billion foreign exchange swap with the US

Federal Reserve (FED) to enable banks to get access to emergency

liquidity should it be needed. MAS also loosened monetary policy,

but to understand how this was actually implemented, requires

some elaboration on Singapore’s rather unique exchange rate-

centred monetary policy.

75

Since 1981, Singapore’s monetary policy, summarised in the

acronym ‘BBC’ or basket, band and crawl, has been centred on the

exchange rate with the primary objective of ensuring domestic price

stability as an anchor for macroeconomic stability in general and a

sound basis for sustainable economic growth.

76

The exchange rate 

is monitored and ‘managed’ against a trade-weighted basket 

of currencies (TWS$) of Singapore’s major trading partners and

Monetary Policy in Singapore and the Global Financial Crisis

145

75

For the exchange rate aspects of Singapore’s monetary policy see Chapter 10.

76

There is no doubt that, despite its unorthodoxy, monetary policy in Singapore has

been very successful since 1981 in helping the economy to adjust to periodic

economic shocks. It has delivered a stable currency and low and stable consumer price

inflation without sacrificing economic growth and employment, and has avoided

balance of payments crises. See Wilson (2002) and Peebles and Wilson (2009).

b1110_Chapter-08.qxd  2/21/2011  11:03 AM  Page 145