IMF's annual health check on the Singapore economy is out;
IMF's view: Large net fiscal reserves resulting from past prudence provide scope over the medium term to meet social needs associated with rising income inequality and aging without compromising fiscal sustainability. A further deepening of structural reforms will be key to sustaining robust growth. While the financial system is sound, risks from increasing integration with international financial markets should be closely monitored and managed to maintain the stability and growth of the financial sector. With inflation expectations well anchored, there is no compelling reason to change the current monetary policy stance of targeting a modest and gradual appreciation of the nominal effective exchange rate at this moment. Nevertheless, if large capital inflows persist, the MAS should refrain from sterilization. This would discourage such inflows, easing the need for foreign exchange intervention. The large current account surplus at present can be mainly explained by structural and cyclical factors, but its ratio to GDP is expected to decline gradually over time as private investment continues to recover and the rapid aging of the population lowers national savings. The real effective exchange rate is likely to appreciate gradually as part of this process.
Government's view: The authorities broadly agreed with the staff’s assessment and policy recommendations. Notwithstanding their concerns about stagnant wages of low-skilled workers, they reiterated their view that work is the best form of welfare but did not rule out the possibility of further strengthening the social safety net. Proactive structural reform aimed at sustaining growth would continue, including promoting high value added sectors, encouraging research and development, and strengthening human capital. Safeguarding financial sector growth and stability is crucial to Singapore’s heightened role as a global financial sector. The authorities saw no need to adjust liquidity management (sterilization). They emphasized that money market operations are aimed at maintaining adequate liquidity in the banking system and that interest rates are not their monetary policy instrument. Within the exchange rate centered framework, interest rates could adjust on market expectations of the future path of the Singapore dollar without any shift in the MAS’ liquidity management.
Monetary Policy Operations in Singapore
Singapore's Exchange Rate Policy
Equilibrium Exchange Rates and Exchange Rate Forecasting
Professor Ronald MacDonald
The Foreign Exchange Origins of Japan's Economic Slump and Low Interest Liquidity Trap
Professor Ronald McKinnon
"Free Trade Agreements - An Economic Policy tool for Singapore in a Globalized World" by Teo Ming Kian, Executive Chairman of the Economic Development Board,