Tackling De-stabilising Capital Inflows

The following question stood in the name of

Mr Ong Teng Koon: To ask the Prime Minister (a) whether there are destabilising capital inflows into Singapore from investors seeking a safe haven; (b) if so, what will be the impact on the Singapore Dollar, Singapore Dollar-denominated assets, Singapore Dollar interest rates and Singapore's real economy; and (c) whether the Ministry has specific plans to address de-stabilising capital inflows.

Ms Tin Pei Ling (Marine Parade): Question No 11, Sir.

Mr Lawrence Wong (for the Prime Minister): Mr Speaker, Sir, industrialised economies have kept interest rates at historic lows to support their still fragile economic recovery and avoid further escalation in financial market stresses. This has resulted in an increase in capital flows seeking higher returns in Asia and other emerging economies over the period 2010 to around mid-2011. Reflecting Singapore's openness, domestic interest rates have also fallen in tandem with global rates.

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Since late 2011, however, investors have become more risk averse due to growing concerns over the debt crisis in Europe and some slowdown in Asia's growth. Capital has moved back into some major markets. Capital inflows to Singapore have thus receded.

Large capital flows are a cause for concern if they disrupt the financial system or fuel asset price inflation. Singapore's financial sector is sound. Our financial markets are deep and have so far been able to intermediate large capital flows. Our foreign exchange and domestic money markets have continued to function in an orderly manner.

The impact of foreign money flows on the property market has been a concern, however, and as Members know, the Government has therefore implemented measures to help moderate excessive investment demand, including from abroad.

We cannot rule out Singapore seeing resurgence in short-term capital inflows, given our strong macroeconomic fundamentals. We will continue to monitor closely the impact of capital inflows on the domestic economy and especially on our asset markets to ensure that these flows do not threaten the stability of the financial system or the property market.