MAS Censuring Leading to Higher Rates – The Price To the Man On The Street

Singapore punishes 20 banks in benchmark rate review

Source : Reuters

“In censuring the 20 banks, MAS has demanded that 19 of them set aside extra reserves with it at zero interest for a year….. In total, the amount with MAS could range from $8.5 billion to as much as $12 billion…” The Straits Times

Source : MAS Additional Reserves. Source :  MAS

DO NOT REJOICE !

It means that they will PASS THE COST TO YOU !

Best indicator this morning, Singapore Government Bonds sold off hard, about 5 bp higher on the day despite relatively benign performances from our regional counterparts. The logic being that banks usually run with significant buffer on their SGS holdings with the central bank and have decided to use that buffer to pay up for the additional cash reserves they have to post with the central bank – left pocket into right pocket.

Reserves at zero means the cost of funds to the bank increases which is the cost of doing business. They have a choice to pass the cost onto depositors or the borrowers. Since deposit rates are running on zero, it would look like borrowers will have to pay the price.

133 traders ? 75% of gone from the market. I am slightly perturbed at the number because that means more than 6 traders on average per bank and that is a large number because some of the banks do not even have 6 traders unless we are counting traders based in HK and offshore centres.

I feel like I deserve a medal for being a rare specimen.