SINGAPORE (Reuters) - The global economy should be able to adjust to rising U.S. interest rates but vigilance will be required as financial markets and households have become accustomed to ultra-loose monetary conditions, Singapore central bank’s managing director said on Thursday.
“The rise in rates is itself a response to strengthening economic activity. But vigilance is still called for. Economies and markets ... could be thrown off balance if rates rise faster than expected,” Ravi Menon, managing director of the Monetary Authority of Singapore (MAS) told reporters.
Rising interest rates in the United States have been a major focus for financial markets this year, especially with wobbles in China’s economy raising worries that global growth could falter if the Federal Reserve tightens policy too fast.
The bigger concern in the event U.S. interest rates rise faster than what markets expect is the risk globally to households and companies that have grown accustomed to easy conditions, Menon said.
“That is more worrisome because...when they get into trouble, that will have a more lasting economic impact than markets going through a few weeks of gyrations.”
Besides the Fed, other advanced economies have also begun to switch gears. Bank of England Governor Mark Carney surprised many on Wednesday by conceding a hike was likely to be needed as the economy came closer to running at full capacity.
The Bank of Canada went further, with two top policymakers suggesting they might tighten as early as July. That followed hawkish comments earlier in the week from European Central Bank President Mario Draghi.
Turning to China, Singapore’s biggest trading partner, Menon said the Asian giant is on a steady growth path.
China has considerable buffers to deal with problems related to the high debt-to-GDP ratio in the country, he said, though addressing that issue will take time.
“It takes many years for corporates, for governments, for households to unwind leverage, bring down debt levels relative to income, without tipping into serious problems.”
Speaking after the release of the MAS’s annual report, Menon said the current neutral stance of monetary policy - in place since April last year - remains appropriate for an extended period given the stable inflation and growth prospects.
He reiterated that Singapore’s export-reliant economy was forecast to grow by 1-3 percent this year, with a “strong likelihood” that growth would exceed last year’s 2 percent.
But Menon warned that authorities would not ease property market cooling measures as the market has shown some signs of recovery in recent months.
“The property market has substantially stabilised over the last three years. It is, however, not time yet to ease the cooling measures,” Menon said.
“Regional property markets have been buoyant and their respective authorities have... introduced further property cooling measures. Easing the measures now will send a wrong signal.”
Private residential property prices in Singapore have fallen nearly 12 percent over the last 14 quarters, as the market cooled after the government implemented a series of property curbs since 2009.
Reporting by Masayuki Kitano and Miyoung Kim; Editing by Shri Navaratnam