\n<\/p>\n
MAS also highlighted renewed conflict in the Middle East and persistent uncertainty in trade policy adding to inflation risks.<\/p>\n
While access to oil reserves cushioned the initial energy shock, diminishing spare capacity leaves commodity markets more vulnerable to price volatility, it added.<\/p>\n
Higher tariffs and the prospect of more trade restrictions are also raising production costs, said the central bank.<\/p>\n
Geopolitical tensions are increasing the likelihood of recurrent disruptions across energy markets, shipping lanes and supply chains for critical technology, it added.<\/p>\n
\u201cThe increased frequency and duration of supply shocks could make inflation more volatile and unanchor expectations. Monetary policy may consequently have to be more restrictive for longer, tightening financial conditions across sovereign and corporate debt markets,\u201d said MAS.<\/p>\n
Domestic financial conditions have been generally accommodative against this global backdrop, said the central bank.<\/p>\n
Domestic borrowing costs have eased over the past year, with the three-month Singapore Overnight Rate Average (SORA) extending its downward trend and Singapore investment-grade credit spreads tightening, MAS said.<\/p>\n
The Straits Times Index rose 33 per cent year-on-year in the third quarter of 2026, and bank credit growth remained firm, it added.<\/p>\n
\u201cHowever, rising global interest rates could exert some tightening pressures in the period ahead,\u201d MAS said in its annual review.<\/p>\n
Most firms and households have strong balance sheets and are expected to remain resilient under stress, said the central bank, adding that its stress tests show that these two sectors have enough buffers to manage shocks to earnings, incomes and financing costs.<\/p>\n
Highly leveraged firms or those with thinner liquidity buffers could come under strain, MAS said.<\/p>\n
Among households, only a small proportion of borrowers with limited savings buffers could face cash flow constraints, it added.<\/p>\n
\u201cIn view of the uncertain macroeconomic outlook, firms and households should manage their finances prudently and maintain adequate liquidity buffers against potential stress.\u201d<\/p>\n
MAS\u2019 tests confirm that banks and insurers are well-capitalised and can withstand severe macro-financial shocks, it said. Investment funds also have enough liquidity to meet redemption requests under stress, added MAS.<\/p>\n
But banks should continue to maintain sound risk management practices and healthy buffers amid the uncertain environment, said the central bank.<\/p>\n
For insurers, a broad repricing of risk assets could lead to more fund redemptions and capital losses, it added.<\/p>\n
\u201cInvestment funds should therefore maintain sound liquidity positions while insurers should ensure that they have adequate capital buffers,\u201d said MAS in the report.\u00a0<\/p>\n<\/div>\n
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