(Nov 27): Singapore’s central bank warned of global monetary policy uncertainty in the face of increased trade friction and geopolitical wrangling.

“The global economy confronts heightened uncertainty, trade tensions and geopolitical conflicts that could raise the probability of adverse shocks,” the Monetary Authority of Singapore (MAS) said in its annual Financial Stability Review on Wednesday.

The build-up of financial imbalances, stretched valuations and leveraged positions may amplify these risks, the MAS said. Potential triggers for market volatility include more hawkish-than-expected Bank of Japan rate decisions, US data which challenge the soft-landing narrative and fiscal sustainability concerns, the central bank added.

Global markets went into a tailspin in August following weaker-than-expected US July nonfarm payrolls data which sparked US recession fears, as well as borrowing cost concerns following a rate hike from the Bank of Japan. Japan’s stock market saw the fiercest one-day selloff since 1987 and global emerging-market currencies tumbled.

The MAS, which uses the exchange rate as its main policy tool, stood pat in October. That’s in contrast with interest-rate cuts in much of the developed world. The trade-dependent island last week raised its 2024 growth forecast but warned of risks next year given an expected slew of tariffs.

Other highlights:

• Firms in Singapore cited concerns over escalating tensions in Ukraine and the Middle East
  
• Strong balance sheet of domestic corporates, households and financial institutions helped them cope with the higher borrowing costs and market volatility
  
• Corporates kept debt levels significantly below the pre-Covid averages, while household leverage risk has moderated with the easing of domestic mortgage rates
  
• Banks’ profitability and capital positions could be pressured by rising credit costs and falling lending volumes due to elevated interest rates, slower global growth and escalating trade tensions
  
• The “easing of domestic interest rates may have boosted market sentiments” in the property scene. Current measures have restrained excessive real estate demand and the MAS expects the rental market to be “broadly stable” due to increased supply and easing demand pressures
  

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