4th July 2023 – To ask the Prime Minister regarding the $30 billion that was recently loaned by DBS to MAS (a) what is the rationale for this loan; (b) whether other local banks made similar loans to MAS recently; (c) if so, in what amounts; (d) how frequently does MAS expect such loans to be required in future; and (e) will the Government consider how such loan capital can be channelled to support micro, small and medium-sized enterprises.
Answer by Mr Tharman Shanmugaratnam, Senior Minister and Minister in charge of MAS:
1. Mr Perera is likely referring to DBS CEO Piyush Gupta’s response to a question during the bank’s recent financial results conference call, that it had lent $30 billion to MAS as DBS was “not finding enough opportunities to put the money to work”. Mr Gupta’s comment might have been interpreted to mean that MAS had borrowed from DBS to meet MAS’ needs. That is not the case.
2. MAS conducts borrowing or lending transactions with banks continually as part of its money market operations (“MMOs”), which are essential to the implementation of its monetary policy. MMOs are a core function of central banks, to ensure that there is an appropriate amount of liquidity in the banking system: in other words, sufficient to meet banks’ demand for reserve and settlement balances but not excessively so.
3. In Singapore, MMOs are a complement to MAS’ foreign exchange intervention operations, which are used to implement Singapore’s exchange rate-based monetary policy. Historically, there have tended to be frequent appreciation pressures on the Singapore Dollar, in part reflecting investor confidence in Singapore. To keep the exchange rate from appreciating beyond its monetary policy settings, MAS intervenes in the foreign exchange market to sell the Singapore Dollar and buy foreign currencies. This results in the accumulation of Official Foreign Reserves and a build up of Singapore Dollar liquidity in the banking system. Consequently, MAS engages in MMOs to withdraw excess liquidity from the banking system, as too much liquidity can lead to a rise in financial vulnerabilities such as inflated asset prices and excessive credit growth.
4. Borrowing from the banks is one of the ways in which MAS carries out MMOs to soak up such excess liquidity. Like other central banks, MAS does this daily through an auction system, enabling MAS to withdraw liquidity through the Primary Dealers that submit the most competitive prices. The local banks are part of MAS’ network of 13 Primary Dealers, and participate in the daily MMO auctions.
5. The banks’ participation at MMO auctions also do not constrain their ability to lend to micro, small and medium-sized enterprises, and these lending decisions are subject to their own pricing and credit considerations.
6. More information about MAS’ MMO in Singapore can be found in the monograph on MAS’ website:
https://www.mas.gov.sg/-/media/mas/...0313-monetary-policy-operations-monograph.pdf .
