RISING INTEREST RATES (Impact)

Mr Chng Hee Kok asked the Deputy Prime Minister what is the impact of rising interest rates on the economy.

BG Lee Hsien Loong: Mr Speaker, Sir, MAS does not expect the recent rise in interest rates to hurt the Singapore economy significantly. Our corporate and household debts are both quite low. An MAS study has found that the debt-to-equity ratio of 181 companies listed on the Stock Exchange was 40% in 1996, compared with 220% for the top 20 listed Korean companies. Household debt repayment burden, ie, the proportion of personal disposable income used to service debt payments, including both interest and principal, was 25% in 1996. At these levels of indebtedness, a 1-2% point increase in interest rates will not significantly impair corporate profitability nor increase household debt burden.

Higher interest rates will tend to depress asset values, such as share and property prices. Households which have over-extended themselves, particularly those who have borrowed excessively to finance share purchases or buy properties, will face difficulties. But the larger impact on our share and property market, and the main challenge now facing our economy, is the continuing economic crisis in the region.

Mr Chng Hee Kok: Sir, I think we live in a very extraordinary period. My question to the Deputy Prime Minister is that since rising interest rates have an adverse impact on the property market, especially mortgages, will the Government review further its land sales programme, Sir?

BG Lee Hsien Loong: Mr Speaker, Sir, we announced in November last year that we had deferred land for 2,000 units of private property from last year's fourth quarter sales into the first half of this year and that we would review the position after the first quarter. We have not begun to act, but that plan stands.