5

In September, the Monetary Authority introduced the reserve requirement as a supplement to the restrictions imposed on credit to the consumption sectors.  This was with the aim of relieving pressures on the external accounts.

7

The ratio was increased progressively to 6% in August, then 7% later in the year and was consistent with the policy objective of the preceding year.

7

While the MRR remained unchanged, the eighth month of the year saw the introduction of a secondary reserve requirement of 3% against deposit liabilities to be held in government securities including T-bills and in shares of debentures issued by DBS.

7

The secondary reserve requirement was replaced by the LAR of 60%, the aim of which was to reduce the surplus liquidity of the banks, curb the expansion of credit to private and parastatal sectors, deter capital outflows from the country and shift as much of government borrowing from the Central Bank to the commercial banks.   The 60% was in consideration that prior to the introduction of the LAR, most banks were already channelling over 60% of their resources to the government.  

10

The tighter cash reserve ratio was part of a policy package introduced to mitigate the potential impacts of the Middle East war on the economy’s external viability and to ensure the supply of essential services into the country.   A higher MRR was intended to complement the 30% foreign exchange surrender requirement in order to restrain the liquidity effects of an accumulation in external reserves.  The increase in the MRR was done in phases rising to 8% on March 04, 9% on April 01 and 10% on May 06.

20

The tightening in the cash reserve ratio on November 16 was brought about by fiscal lapses on the government’s part as well as monetary and external imbalances, which caused a deterioration in the monetary position.  Hence, the purpose of the measure was to eliminate some of the excess liquidity from the banking system by essentially constraining banks’ ability to extend credit.  

2.5

The significant reduction in the MRR ratio on September 15 was to complement the increase in the LAR to 70% (following a fall to 50 % in 1988).  The policy move was principally to accommodate high fiscal deficits and high cash requirement of the government.   As regards to the LAR, the increase to 70% was made on the basis that commercial banks had been holding an average of 70% of their deposits in government securities since 1988 supported by the relatively high interest rates prevalent on government securities. 

5

The MRR ratio was increased with the objective of removing excess liquidity in the system.  The LAR was conjunctly decreased to 65 %.