MAS clocks net loss on the back of inflationary pressures

Singapore's central bank clocked a net loss for the first time in nine years as a stronger Singapore dollar weighed on its earnings and foreign reserves.

The Monetary Authority of Singapore (MAS) yesterday said at its annual briefing that it recorded a net loss of $7.4 billion for the financial year ended March 31.

The net loss meant that MAS did not contribute to Singapore's consolidated fund from which government expenditure is made.

Singapore has been tightening its monetary policy since October last year and strengthening its currency to tame inflation. But it is an uphill battle and MAS indicated yesterday that it expects inflation to get worse before it gets better.

One result of the strong Singdollar was that Singapore's official foreign reserves (OFR) dipped $4.7 billion for the financial year, after having gained $8.2 billion the previous year.

Investment gains of $4 billion were more than offset by the strengthening of the Singdollar, as MAS took a hit of $8.7 billion when it translated its foreign exchange reserves to the local currency.

The Singdollar strengthened 4 per cent against the British pound, 5 per cent against the euro, and 9 per cent against the Japanese yen.

The stronger exchange rate makes imports cheaper but can also lower Singapore's exports, in turn, slowing economic growth.

"If there are fresh shocks to global energy and food supplies arising from the ongoing conflict in Ukraine or a significant overheating of the domestic labour market, inflation may end up being higher and more persistent," MAS managing director Ravi Menon told reporters.

Tighter financial conditions, coupled with a squeeze on real incomes as a result of rising prices, will act as a drag on growth, he added.

Singapore will also have to do without contributions from MAS, which had chipped in with $1.07 billion in fiscal year 2021 and $2.17 billion in 2020 to the consolidated fund.

The investment returns from Singapore's reserves supplement its Budget spending. The Government can spend up to 50 per cent of the expected long-term investment returns generated by MAS, GIC and Temasek - the three entities tasked to manage the reserves.

Temasek said last week that its net portfolio rose to a record $403 billion for its fiscal year as at end March, up from $381 billion a year ago. GIC is slated to share its performance next week.

When asked, the Ministry of Finance said it looks at the long-term figure to derive the net investment returns contribution and not at short-term market changes. "And that is also why we have continually emphasised that we hold our investment entities to the performance measure of their long-term returns, rather than looking at year-to-year performance."

Going forward, MAS' deputy managing director for corporate development Jacqueline Loh said a negative effect can be expected if the Singdollar repeats its performance. She added that the central bank takes a long-term investment approach and OFR are invested in a well-diversified portfolio, across asset classes and geographies.

OCBC's chief economist and head of treasury research and strategy Selena Ling said the global investment landscape has become more challenging in light of inflation and uncertainties such as the ongoing Russia-Ukraine war.

"While Singapore is by no means fiscally stretched, as illustrated by the ability to finance the recent $1.5 billion assistance package to help with cost-of-living issues and hints that more can be done if needed, nevertheless, this may strengthen the resolve to proceed with the planned goods and services tax hike starting from January 2023."

Amid the uncertain outlook, Singapore's financial sector clocked a 7.4 per cent growth.

Fintech investments hit a high of US$3.9 billion (S$5.43 billion), while the past year recorded a net creation of 4,300 jobs in financial services.

Industry stress test results also show that banks would have sufficient buffers to weather shocks from an adverse macroeconomic scenario.

Household balance sheets here are also generally resilient and most, save for "a small segment of households", should be able to service their loans even in the event of sharp interest rate hikes and income loss, Mr Menon said.