Singapore’s Central Bank Panics! Goes on an Easing Mode

Last November, Singapore’s central bank the Monetary Authority of Singapore, raised alarm bells by citing the financial system's record levels of corporate debt to gdp, aside from household debt to income ratio.

In the second week of this year, mainstream media has raised anew concerns over cracks in the city state’s debt financed housing bubble expressed in terms of declining property prices in the light of still ballooning debt, rising rates, falling currency, signs of capital flight and growing incidences of loan defaults.

Well I guess all these has led to today’s ‘emergency’ action.

From Bloomberg: (bold mine)

Singapore unexpectedly eased monetary policy, sending the currency to the weakest since 2010 against the U.S. dollar as the country joined global central banks in shoring up growth amid dwindling inflation.

The Monetary Authority of Singapore, which uses the exchange rate as its main policy tool, said in an unscheduled statement Wednesday it will seek a slower pace of appreciation against a basket of currencies. It cut the inflation forecast for 2015, predicting prices may fall as much as 0.5 percent.

The move was the first emergency policy change since one following the Sept. 11, 2001 attacks for the MAS -- which only has two scheduled policy announcements a year -- reflecting how the plunge in oil has changed the outlook in recent months. Singapore becomes at least the ninth nation to ease policy this month, as officials from Europe to Canada and India contend with escalating disinflation and faltering global growth…

The European Central Bank announced quantitative easing plans this month while Canada, Denmark and India cut interest rates. More may come -- the Bank of Japan chief said the country may need to get creative in any further monetary stimulus and Thai policy makers face growing pressure to lower borrowing costs.

In view of the previous events, in Singapore’s case, the MAS’ emergency action today has hardly been about “shoring up growth amid dwindling inflation” but rather about the mitigation of the growing burden of debt to an increasingly debt constrained society.

But of course, while easing may lower rates, which temporarily may alleviate the debt onus, easing also allows levered companies heavily dependent on debt to rollover debt. In short, monetary easing entails solving debt problem through MORE debt buildup.

Thus the MAS’ actions have been intended to buy time from a painful reckoning from previous speculative excesses financed by debt. But the kick-the-can-down-the-road policies simply means accretion of more imbalances.

The USD-Singapore dollar currently trades at 2010 highs. Yet Singapore’s stock market as measured by the STI nears record highs (stockcharts.com).

Perhaps debt constrained entities have pumping up stocks (by using leverage too?) in order to generate a bandwagon effect. And because rising stocks may bring about trading profits, cash flows from speculative stock punts may allow debt constrained entities to rollover existing debt.

So Singapore’s bubble dynamics spreads from property to the stock market.

And once again we seem to be seeing a divergence between the real economy (increased signs of economic stress)-monetary policies (panicking central bank) and the stock market: Singapore edition

Finally, the article notes that 9 nations have undertaken easing measures. If everything has been salutary as manifested by record stocks, and as what media has been saying, then why the need to ease?

Or has these been symptoms of the inability to wean away from overdependence on debt?