More steps may be taken to prevent property market bubble

The Ministry of Finance has said that Singapore will need to be “vigilant about the possibility of a property market bubble and take further measures where necessary”.

Finance Minister Tharman Shanmugaratnam was responding to queries in Parliament over the possible effects on Singapore of the latest round of quantitative easing by the US.

He added that the Monetary Authority of Singapore has “got a good handle” on the situation, and the government is “not fundamentally concerned” about “stability in the financial system”.

The latest round of monetary easing by the US Federal Reserve came up for discussion in Singapore’s Parliament on Monday.

The US$600 billion programme is likely to push further capital into the region, in search of better yields.

This is expected to be a “problem” Singapore will “have to address for some time”.

Mr Tharman said: “The government will continue to monitor the situation closely, and take additional steps if necessary to ensure financial stability and sustainable asset markets. We are more concerned about property prices rising too quickly, too far, and our three rounds of measures so far have been aimed at injecting some stability in that process.

“We are not contemplating introducing capital controls, but will continue to rely on a wide range of policy tools to ensure that capital flows do not threaten financial stability or cause a property market bubble.”

Policy tools that have been used so far include the tightening of monetary policy in October by the central bank.

The exchange-rate band for the Sing dollar was adjusted to allow for a slightly steeper appreciation of the currency; it was also widened a little, in view of more volatility in global markets.

Other pre-emptive moves that have been taken include three rounds of of measures to cool speculative fervour in the real estate market, with the latest guidelines coming into force from August 30. For example, property buyers with one or more outstanding housing loans will have to pay more cash upfront.

The monetary tightening is also expected to help damp imported inflation, amid concerns over global shortfalls of crops.

Inflation in Singapore quickened to 3.4 per cent in the third quarter from less than 1 per cent in the first quarter this year. Inflation will accelerate to around 4 per cent by the end of 2010, before moderating to about 2 per cent in the second half of 2011, according to Senior Minister of State for Trade and Industry, S Iswaran.

He said: “In the near term, inflation is likely to rise further. Cost pressures are growing, reflecting the high level of economic activity in Singapore.

“Notably, the cumulative rise in employment has led to some tightening in Singapore’s labour market. At the same time, food price inflation is expected to accelerate over the few months, given the spate of weather-related supply disruptions in various parts of the world.”

Mr Iswaran believes that the continued diversification of Singapore’s food sources will mitigate volatility and help keep prices low.

He emphasised the need for workers and companies to play their part in raising productivity to help mitigate the inflationary effects of wage increases in a tightening labour market.

Source : Channel NewsAsia – 22 Nov 2010

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