INFLATION (Government measures)

Mr Teong Eng Siong asked the Minister for Finance what steps he has taken or proposes to take to combat inflation.

The Minister for Finance (Mr Hon Sui Sen): Mr Speaker, Sir, taking first the monetary aspect of inflation, Members will recall that in my Budget statement I singled out inflation as a problem deserving particular attention. I have outlined in some detail the monetary measures which have been taken to absorb the excess liquidity in the economy to check inflationary pressures. The most recent policy action was the increase of the minimum reserve requirement which banks and finance companies have to maintain with the Monetary Authority of Singapore against their deposit liabilities from 5 per cent to 9 per cent. Similarly, the special deposit which banks have to keep with MAS against their net foreign liabilities has been increased from 5 per cent to 9 per cent. These measures came into effect on 16th March, 1973. The effects of these measures on credit creation and the money supply will be felt in the coming months.

The domestic monetary situation will be closely watched particularly in the light of new developments in the international currency markets. We can draw on a number of other policy instruments to meet any new situation that may arise.

Secondly, as to local price increases of essential commodities, I have already outlined in the debate on the Ministry of Finance Estimates the steps we can take and have taken to moderate such prices. What we cannot do is to prevent failure of crops in large areas of the world, causing a world shortage of rice, wheat, sugar, and other essential commodities, which cause a rise in the prices of these commodities. Let us hope there is a fair harvest this year so that grain prices will go back to normal. However, we cannot avoid a rise in the cost of imports of manufactured goods, resulting from the increased wages and inflation of some industrial countries. Of course, some of these countries may have, from time to time, to devalue their currencies but it never brings prices back to what they used to be.