THE combination of elevated global interest rates and pre-existing weaknesses remain a threat to world financial-market stability, Singapore’s central bank has warned.
Fragilities built up during the Covid-19 pandemic may be exposed if central banks maintain their restrictive monetary policy settings, as was seen in the spate of US bank failures in March, the Monetary Authority of Singapore said in its annual Financial Stability Review. Emerging markets may also face deepening public debt risks as shown by a number of defaults over the past year, which may lead to risk aversion and outflows, the MAS said. Other risks to financial stability include rising geopolitical tensions, climate change, the Israel-Hamas conflict, Russia’s war on Ukraine, and a slowing Chinese economy, according to the report.
Still, Singapore remains well placed to cope with the challenging environment as banks’ credit quality has continued to be strong and most corporates and households have weathered the pass-through of interest rate hikes with no significant increase in loan delinquency, MAS said.
Rental pressures to abate
ON the closely-watched property front, the MAS said rental pressures in the residential market should “continue to abate” with a large supply of units being completed.
The momentum in price rises has also moderated, and demand is expected to be restrained by high interest rates and moderation in wage growth, according to the MAS. Foreign demand in Singapore’s private residential property market has fallen to about 4 percent of total transaction activity in 2023, down from more than 6 percent in the first quarter before the latest round of cooling measures were introduced, it said.
• Banks in Singapore see monetary tightening as the biggest danger to the financial outlook, with several saying higher rates likely will lead to greater credit risk
• Threats from geopolitics, technology and cyber risks, and money laundering are also key dangers to the financial outlook, local banks say
• Most corporates remain resilient to any joint shock from lower demand and higher interest rates, according to a MAS stress test on Singapore-listed companies
• The central bank sees repricing of overvalued commercial real estate assets globally as a “salient” risk especially on the credit front to banks Bloomberg News