[SINGAPORE] Singapore has long been considered a financial hub in Southeast Asia, with a well-regulated economy and a robust monetary system. However, recent developments have raised eyebrows among economists, as the nation’s money market rates are sliding despite a significant policy pivot by the Monetary Authority of Singapore (MAS). This shift in policy was intended to tighten liquidity and increase interest rates, but the markets have responded differently than expected.
In this article, we will explore why Singapore’s money market rates are sliding, despite the policy change, and what this means for the economy. We will also examine the broader implications for investors, consumers, and policymakers, with insights from experts in the field.
The Monetary Authority of Singapore (MAS) is the central bank of the country, and its decisions significantly impact the nation’s financial markets. On January 2025, the MAS made a major policy pivot that surprised many analysts. This included a reduction in the slope of the Singapore Dollar nominal effective exchange rate policy, a move designed to weaken the currency. Such a policy shift is usually followed by higher interest rates, as investors demand higher returns to compensate for the risk of holding a depreciating currency.
The expectation was that the weaker currency would lead to tighter liquidity conditions, driving interest rates up across the board, especially in the money market. However, despite these expectations, Singapore’s money market rates have continued to slide, which has left many market participants perplexed.
A Slide in Money Market Rates: What’s Happening?
The Singapore Overnight Rate Average (SORA), a key benchmark used in Singapore's money markets, has seen a steady decline. As of mid-March 2025, the SORA had fallen to 2.08%, its lowest level since 2022. This is particularly surprising given that the MAS's recent policy pivot was expected to push rates higher. The downward movement in money market rates has sparked debates about the factors influencing the market and why they are diverging from expectations.
Several factors contribute to the decline in money market rates despite the MAS's actions. To understand these dynamics better, it is important to consider both internal and external elements that influence liquidity in the market.
Liquidity Surplus and Loan-to-Deposit Ratios
One of the primary reasons for the sliding money market rates in Singapore is the continued liquidity surplus in the banking system. Frances Cheung, head of foreign exchange and rates strategy at Oversea-Chinese Banking Corp, explains, "Singapore dollar liquidity has been flush as investors could still be holding the view over the currency’s appreciation despite the earlier slope reduction from the MAS in January, while the loan-to-deposit ratio has stayed low."
This indicates that despite the policy shift designed to curb the appreciation of the Singapore dollar, the market still perceives the currency as strong. As a result, there is a relatively low demand for liquidity, which has led to lower interest rates. Furthermore, the loan-to-deposit ratio in Singapore has remained low, meaning that banks are not in immediate need of liquidity, and this has contributed to the ease of money market rates.
Impact of Foreign Investment and Fixed Deposits
Another significant factor behind the falling money market rates is the strong demand for Singapore dollar-denominated fixed deposits, which has led to an increase in foreign investment inflows. Singapore’s reputation as a safe haven for capital has attracted international investors looking for stable returns. As these investors park their capital in fixed deposits, it further adds to the liquidity in the financial system, putting downward pressure on interest rates.
Despite the MAS’s attempt to tighten the monetary environment, foreign investment inflows have helped keep liquidity high, which in turn prevents interest rates from rising as expected. This has created a divergence between policy intentions and market realities, leaving analysts to reconsider their predictions for Singapore’s financial outlook.
Singapore Dollar Strength: An Unexpected Factor
An additional factor influencing the slide in money market rates is the unexpected strength of the Singapore dollar. While the MAS intended to weaken the currency as part of its policy pivot, the Singapore dollar has continued to appreciate, largely due to its strong correlation with the Chinese yuan. The yuan, backed by the People’s Bank of China, has remained resilient amid trade tensions with the United States, boosting investor confidence in Asian currencies, including the Singapore dollar.
The Singapore dollar's continued strength has reduced the need for higher interest rates to offset a depreciating currency. In fact, despite the MAS’s efforts, the Singapore dollar remains one of the strongest currencies in Asia, which has kept borrowing costs relatively low. This unexpected strength in the currency has contributed to the fall in money market rates, defying the MAS’s initial intentions.
The Property Market: A Double-Edged Sword
Despite the central bank’s efforts to tighten liquidity, the lower interest rates have fueled a resurgence in Singapore’s property market. This is one of the unintended consequences of the MAS’s policy shift. Lower interest rates make borrowing cheaper, which has led to an uptick in property transactions. According to reports, private home sales surged in February 2025, with the sale of 1,575 new homes, marking the highest sales volume in three months.
Interestingly, many of these homes were sold for more than S$2 million, suggesting that the demand for high-end properties remains strong. Audrey Ong, a strategist at Barclays, points out, “Authorities would be reluctant to see a sharp drop in interest rates over the medium term as it may hinder their goal of cooling the property market.” The housing market, already facing affordability issues, could become overheated if the trend of falling interest rates persists.
This presents a dilemma for the MAS: while low rates may stimulate economic growth in the short term, they could also lead to inflated asset prices, particularly in the property market. This could create financial imbalances that may require further policy intervention.
Risks to the Economy: Inflation and Asset Bubbles
The ongoing decline in money market rates and the property market’s resilience could ultimately lead to inflationary pressures. If borrowing costs remain low for too long, it could encourage excessive speculation in the property market, leading to the formation of asset bubbles. This could further exacerbate the challenges that Singapore already faces in managing housing affordability.
Furthermore, lower interest rates could have broader economic implications. For example, while businesses may benefit from lower borrowing costs, it could lead to distortions in capital allocation, as investments may flow disproportionately into the real estate sector rather than other areas of the economy. This could slow down broader economic diversification efforts and hinder long-term growth potential.
The MAS’s Next Steps: Managing the Balancing Act
Given the current market dynamics, the MAS faces a challenging balancing act. On one hand, the central bank needs to ensure that the monetary environment remains supportive of economic growth, especially in light of global uncertainties. On the other hand, the central bank must address the risks posed by rising asset prices and inflation in the property market.
In the near term, the MAS may need to introduce more targeted measures, such as adjusting property lending rules or tightening liquidity in specific sectors, to ensure that the property market does not overheat. This could help prevent the formation of bubbles and ensure that economic growth remains sustainable.
Singapore’s money market rates are sliding despite a significant policy pivot from the MAS, creating a complex economic environment for investors, consumers, and policymakers alike. The continued liquidity surplus, strong foreign investment, and unexpected strength of the Singapore dollar have all contributed to the decline in rates, defying initial expectations.
As the country navigates these challenges, the MAS will need to carefully manage liquidity, monitor the property market, and ensure that monetary policies align with broader economic objectives. The next few months will be critical in determining the path forward for Singapore’s economy, and whether the MAS can strike the right balance between supporting growth and managing inflationary pressures.
For now, Singapore's money markets are in a state of flux, with policy adjustments likely to continue as the country faces both opportunities and challenges in the evolving global economy.
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