Coronavirus outbreak

MAS ready to ensure stability of S'pore's financial system

Regulator's statement comes after several central banks boost liquidity as market panic triggers dash for cash

The Monetary Authority of Singapore said that it has left a higher level of liquidity in the banking system through its money market operations, and Singapore dollar interest rates have eased in tandem with global interest rates. ST PHOTO: JASMINE CHOONG

The Monetary Authority of Singapore (MAS) said yesterday that it "stands ready to ensure the orderly functioning of financial markets and the stability of the financial system in Singapore" as the coronavirus crisis deepens worldwide.

It assured the industry that the Singapore dollar money market and foreign exchange market are currently "functioning normally in the face of heightened volatility in global and domestic financial markets".

MAS said that it has left a higher level of liquidity in the banking system through its money market operations, and Singapore dollar interest rates have eased in tandem with global interest rates.

"The nominal effective exchange rate of the Singapore dollar has eased in an orderly manner within the MAS policy band, in line with weakening economic conditions," it added.

However, it recognised that financial markets all over the world are coming under strain due to the widening coronavirus outbreak.

The statement comes after several central banks worldwide moved yesterday to ease a liquidity squeeze as cratering stock markets triggered a rush for cash, driving many regional currencies lower and threatening a surge in short-term borrowing costs.

Norway's central bank offered the first in a series of emergency three-month loans to the banking sector, and joined the growing list of monetary authorities that have slashed borrowing costs in recent days with an unexpected half-point cut in its key policy rate.

Sweden's central bank said that it would lend up to 500 billion Swedish kronor (S$72.4 billion) to local firms via banks to ensure that they had access to credit.

Japan's central bank pledged to buy 200 billion yen (S$2.6 billion) of five-to 10-year Japanese government bonds and also inject an additional 1.5 trillion yen in two-week loans. Indonesia's central bank also responded to market jitters, buying 6 trillion rupiah (S$572 million) worth of government bonds in an auction. Buying bonds from banks releases cash into the markets.

Earlier yesterday, Australia's central bank injected an unusually large amount of cash into the financial system.

"We should see more action from central banks because what we need here is a short-term liquidity bridge," said Mr Mohammed Apabhai, head of Asian trading strategy for Citigroup.

"The issue is that if we don't see that, then this situation risks becoming a more systemic problem."

The moves came after the US Federal Reserve on Thursday surprised markets by injecting US$500 billion (S$705 billion) into the US banking system, and pledged to add a further US$1 trillion. The unscheduled offer of effectively unlimited dollars came as US stocks plunged nearly 10 per cent on Thursday.

Other central banks also took action on Thursday.

The European Central Bank offered loans with rates as low as minus 0.75 per cent, below its minus 0.5 per cent deposit rate, and so essentially, a rebate.

It also promised to increase its bond purchases.

In Sydney, the Reserve Bank of Australia surprised in its daily money market operation by pumping in A$8.8 billion (S$7.8 billion) into the system through repurchase agreements.

The Reserve Bank of India said that it would provide dollars to the market via currency swaps, with the first such transaction for US$2 billion to be held next Monday.

The Bank of Canada extended its bond buyback programme and pledged to hold more frequent bond exchanges where banks can exchange older bonds for newer, more liquid ones.

REUTERS

• Additional reporting by The Straits Times

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A version of this article appeared in the print edition of The Straits Times on March 14, 2020, with the headline MAS ready to ensure stability of S'pore's financial system. Subscribe