S'pore Central Bank Says Challenge To Stop Credit Crisis Spiral

Source : The Straits Times, Feb 19, 2008

SINGAPORE'S central bank on Tuesday warned that the global credit crisis may spread and said the main challenge was to stop it from bleeding the real economy.

'At this point there is a risk of being caught in a negative spiral. Tightening credit standards and reduced credit availability will be mutually reinforcing with the slowing of the macro economy,' Heng Swee Keat, managing director of the Monetary Authority of Singapore, said in a speech.

'The immediate challenge for policy makers is to contain the spread of the credit crisis to the real economy, to prevent this spiral,' he said at the IMAS investment conference.

Mr Heng said that limiting the scope of the crisis was difficult as the level of exposure to risky debt was unclear, and because central bankers faced different degrees of slowing growth and inflationary pressures in their economies.

'This time last year, the global economic outlook was positive. Today, it has become a lot more uncertain.'

Swiss bank Credit Suisse became the latest casualty of the credit crisis on Tuesday, when said it wrote $2.85 billion off the value of its asset-backed investments and found mismarking and pricing errors on its books, sending its shares plummeting.

Mr Heng said that while only a few investment funds had experienced withdrawals of funds but that this could change if markets carried on falling.

'If asset prices continue to decline, investors may react differently.This is a risk we need to watch.'

'In this state of flux, central banks and financial regulators need to be on heightened alert and respond decisively to developments that might further threaten global growth or financial stability.' -- REUTERS