Published November 29, 2008

MAS eased liquidity stresses

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THE Monetary Authority of Singapore (MAS) took various steps in recent months to maintain calm in interbank markets here as money markets worldwide strained to cope with the unfolding financial crisis.

It injected extra funds into Singapore's banking system at the end of September after Lehman Brothers collapsed, and set up a US$30 billion swap line with the US Federal Reserve in October.

As early as July, MAS had expanded its standing facility to all banks that use its electronic payment system MEPS+, so they could borrow directly from the central bank. Previously, only primary-dealer banks, which act as market-makers for Singapore government bonds and treasury bills, had access to the facility.

The measures adopted have been 'effective in dealing with and anticipating tight liquidity conditions', MAS said in its Financial Stability Review. 'Markets have generally been orderly with sufficient liquidity maintained in the banking system.' It said it 'stands ready to inject additional liquidity' as required.

MAS said that as money markets worldwide came under tremendous stress at the end of the third quarter, it raised the level of liquidity in the banking system here to more than 3.5 per cent of total liabilities, compared with the usual 3.1-3.3 per cent.



The move was meant to buffer the risk of banks scrambling for funds to meet their needs at the end of the quarter, as well as a sharp increase in demand for US dollars amid growing uncertainty in credit markets.