The annual increase in private residential property prices slowed significantly from 18% in 2010 to 5.9% in 2011, and further to 2.8% in 2012. In sequential quarter-on-quarter terms, price increases have dipped below 2%. The motor vehicle market is another example of macroprudential policy in action, this time complementing monetary policy in addressing concerns regarding consumer price stability. BIS central bankers’ speeches  7  Singapore has perhaps the most stringent restrictions on car ownership in the world. Anyone who wishes to register a new vehicle in Singapore must first bid for a Certificate of Entitlement (or COE), which represents a right to vehicle ownership and use of our limited road space for 10 years. The number of COEs is tightly controlled, so as to minimise the number of cars on the road. As the supply of COEs dwindled and demand for cars remained firm on the back of strong income growth and low interest rates, COE prices rose rapidly in the last three years. At their peak early this year, COE prices averaged around $ nearly five times the level in January 2010. This in turn drove up the overall inflation rate, and started having spillover effects on the rest of the economy and shaping price expectations more generally. There was also a growing risk that buyers were over-extending themselves by purchasing more expensive cars, given the low interest rate environment. In February this year, MAS announced measures to restrict the financing of car purchases for private use.
Within this overall tightening stance, MAS has allowed a temporary increase in core inflation to accommodate some of the changes in relative prices. This is to signal resource scarcity and stimulate behavioural shifts. Policy should not be so tight as to hinder the ability of firms to restructure. The tight monetary policy stance since April 2010 has been effective in containing inflationary pressures and keeping the economy on an even keel. It has had three important effects. First, the tighter monetary policy stance has successfully restrained imported inflation despite significant price pressures in the external environment during this period. •  In foreign currency terms, wholesale price inflation among Singapore’s major trading partners averaged around 5% per annum from 2010 to 2012. •  In comparison, overall imported inflation in Singapore dollar terms has been fairly benign, averaging slightly less than 2% per annum in this period. Specific examples illustrate well the efficacy of the exchange rate in dampening imported inflation. •  Global oil prices have risen by an average of 16% per year in 2010–2012. However, local petrol pump prices have only increased by 8%. •  Global food prices, as measured by the IMF Food and Beverage Price Index, rose by 9% per annum during this period, but domestic food prices increased by just 2%. Second, the stronger Singapore Dollar has dampened inflation indirectly by moderating the demand for our exports. In turn, this has eased the demand pressure on domestic resources such as labour and industrial space.