Singapore sees small inflows of capital amid Hong Kong unrest, says central bank

Hong Kong’s political turmoil has prompted some capital to move to Singapore though there has not been a flood of inflows from the semi-autonomous territory, according to the city state’s central bank. Singapore’s banks have seen an uptick in those inquiring about how to reallocate assets, which is reasonable to expect, Ravi Menon, managing director of the Monetary Authority of Singapore, said in an interview on Tuesday. “The smart money will stay put and watch: start planning, make inquiries, make contingency plans, but they wouldn’t be in a big rush to move,” he said. In terms of actual flows, “there are some signs of that happening. But we don’t think it’s significant or substantial,” he said. Singapore’s officials have emphasised that the disruptions in Hong Kong are not helpful for the region’s economies, even as some figures suggest it is gaining from the turmoil in its financial centre rival. Goldman Sachs recently estimated that as much as US$4 billion has moved from Hong Kong dollar deposits to Singapore as of August amid the ongoing protests. Menon said that Singapore’s official read on the flows lacks granularity because it does not employ capital controls and there are confidentiality constraints on accessing private banking figures. While financial flows have probably shown a “small” increase there are no signs of acceleration, he said, declining to elaborate on an estimate. There have been a rise of inquiries from people “about how they may want to reconfigure how their assets are deployed”, he said. A surge in capital flows from Hong Kong would be a worrying sign for the region, according to central bank chief. “That means things have taken a turn for the worse, and that means prospects for the rest of Asia are also taking a turn for the worse,” he said. As for the impact of inflows on monetary policy, Menon said that managing large inflows and outflows is “part and parcel” of the monetary authority’s job and “not a particular challenge”, given that it is not unusual for those flows to exceed Singapore’s gross domestic product in some months. Foreign-currency deposits at both domestic and international banks operating in Singapore rose to S$12.8 billion (US$9.4 billion) in August, according to central bank data. The bulk of the increase took place in July and August, when the figure rose a record S$5 billion in total, the figures show. Singapore avoids recession: what does it mean for PM’s election plans? On Singapore’s economy, Menon said it may soon be set for a recovery as the decline in trade and manufacturing this year has not spread much to other sectors. The monetary authority’s baseline view is that “the current cycle should be bottoming out toward the end of the year and into next year,” and this is based on the assumption that the slump will be largely contained in the trade and manufacturing industries, he said. Singapore’s export-reliant economy has seen a sharper downturn in the second half of this year amid ongoing tensions between the US and China, two of its biggest trading partners. Prime Minister Lee Hsien Loong said last week that the city state would be “lucky” to achieve positive growth for the year. Even after easing policy earlier this month for the first time in three years, “we’re keeping some powder dry and we’ve said as much that, if necessary” the monetary authority is prepared to use it, Menon said. There’s still policy “space”, he added. The central bank, which uses the exchange rate as its primary policy tool, expects growth to come in around the midpoint of an official 0-1 per cent forecast range this year, then “improve modestly” in 2020. Hong Kong may have lost US$4 billion to Singapore during protests “It’s not going to be a robust recovery,” Menon said. The negative output gap – the estimated difference between the economy’s actual and potential performance – is not expected to widen, though there are risks it could, he said. For now, Singapore and many other Asian economies have shown resilience in their domestic demand and services industries. To date, the “current slowdown is really quite concentrated” in trade and manufacturing, Menon said. “That doesn’t mean it cannot spill over into other parts of the economy – it could very well do so. That is a risk that we’re seriously taking into account. But as of now, there are no signs of that.” Central banks around the world are looking for ways to bolster their economies, turning to unconventional policy tools like negative interest rates and quantitative easing as they run out of policy space. But because Singapore’s monetary authority has an exchange-rate policy, it is not constrained by the zero interest rate level like other central banks, Menon said. It has a “fair amount of policy space on the monetary front without having to think about [quantitative easing],” he said. “We can, if necessary, bring the exchange-rate path to zero as we have done before,” he said. “We have never before had a policy of deliberately depreciating the currency, but we can always recentre the band downward.” Menon, who has served as chief of the monetary authority since 2011, worried that there were “unrealistic expectations” placed on global central banks to get their economies out of every rough patch. There should be a better balance between government spending and monetary stimulus, he said, reiterating the sentiment from several global finance chiefs at last week’s International Monetary Fund annual meeting in Washington. “It can’t be that every slowdown, every risk or threat on the horizon has to be addressed by a loosening of monetary policy,” Menon said. Fiscal policy has a stronger role to play, he said.