MAS: Singapore, global economy will be able to adjust to Fed hikes

A view of the Monetary Authority of Singapore building in Singapore April 18, 2016. REUTERS/Edgar Su/Files

SINGAPORE: The global economy should be able to adjust to rising US interest rates but vigilance will be required as financial markets have been accustomed to ultra-loose monetary conditions, Singapore's central bank head said on Thursday.

“The rise in rates is itself a response to strengthening economic activity. But vigilance is still called for. Economies and markets... could be thrown off balance if rates rose faster than expected,” Ravi Menon, managing director of the Monetary Authority of Singapore (MAS) told reporters.

Rising interest rates in the United States have been a major focus for financial markets this year, especially with wobbles in China’s economy raising worries that global growth could falter if the Federal Reserve tightens policy too fast.

Besides the Fed, other advanced economies have also begun to switch gears. Bank of England governor Mark Carney surprised many on Wednesday by conceding a hike was likely to be needed as the economy came closer to running at full capacity.

The Bank of Canada went further, with two top policymakers suggesting they might tighten as early as July.

Speaking after the release of the MAS’s annual report, Menon said the current neutral stance of monetary policy - in place since April last year - remains appropriate for an extended period given the stable inflation and growth prospects.

He reiterated that Singapore’s export-reliant economy was forecast to grow by 1%-3% this year, with a ”strong likelihood” that growth would exceed last year’s 2%.

But Menon warned that authorities would not ease property market cooling measures, as the market showed some signs of recovery in recent months with strong growth in new home transactions and strong demand for the government’s land auctions.

“The property market has substantially stabilised over the last three years. It is, however, not time yet to ease the cooling measures,” Menon said.

“Regional property markets have been buoyant and their respective authorities have... introduced further property cooling measures. Easing the measures now will send a wrong signal.” - Reuters