Domestic interest rates seen rising with US rates: MAS

Singapore's domestic interest rates are expected to rise in tandem with US interest rates, regardless of the central bank's latest move to ease its monetary policy.

"The actual profile of the adjustment will be market-driven,'' a spokesperson from the Monetary Authority of Singapore (MAS) said on Wednesday.

Earlier, the central bank said it will continue with the policy of a modest and gradual appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band but the slope of the policy band will be cut. There will be no change to its width and the level at which it is centred.

According to the MAS spokesperson, domestic interest rates have been low for several years, reflecting extremely accommodative monetary policy globally. Against the backdrop of a sustained economic recovery in the US, the Federal Reserve has indicated that the process of normalising interest rates is expected to begin sometime in 2015, and that the pace of increase is likely to be gradual.

"There could be some short-term volatility in the financial markets, reflecting uncertainties over the pace of interest rate normalisation and developments in the foreign exchange market.''

"MAS monitors these developments very closely. Singapore has coped well thus far, given our strong economic fundamentals and resilient financial markets. We have not had to take extraordinary measures in our money market operations.''

The spokesperson added that the government recognises that rising interest rates could affect some firms and households and has put in place measures to help them adjust to this new reality.

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