Commentary: Here’s what US interest rate hikes will mean for Singapore

A common trilemma in international monetary policy is: monetary autonomy, exchange rate management, and free capital mobility. Pick two, because it’s impossible to enjoy all three. Singapore’s approach has been to relinquish control over the former and manage the latter two options.

This means that Singapore does not determine domestic interest rates or money supply. Interest rates in Singapore are largely determined by foreign rates, particularly those from the United States, as well as market expectations of movements in the Singapore dollar.


Singapore, like the United States, has been in a lower interest rate environment since the start of the pandemic to cushion the economic fallout.

Higher interest rates mean Singaporean households will bear a greater burden of servicing existing debt. Homeowners will need to set aside more money to pay off outstanding mortgages, especially those with floating loans.

Core inflation in Singapore is also at its highest level in almost nine years, reducing their real income. So not only might Singaporeans be forced to cut back on their consumption, but what they spend will also cost more – a double whammy.

The Monetary Authority of Singapore (MAS) is rightly concerned about this, as household debt has steadily increased since 2020. In its December 2021 Annual Financial Stability Review, the MAS advised households to carefully assess their ability to meet their mortgage obligations and urged borrowers to take on debt. heavily indebted not to contract further loans, as it was already anticipating possible rate hikes.

Savers will be satisfied, however, because higher interest rates would encourage households to increase their savings.

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