MAS is preparing for an increasingly flagging unemployment rate, say analysts

Unemployment rate has increased to 3% in June.

It was somehow peculiar to analysts how despite median household income increasing by 10% from 2013 to 2015, the MAS had to resort to a tweak the refinancing rules under the TDSR framework.

Additionally, the resident unemployment rate barely changed in the period.

But according to a report by Jefferies, the move suggests that the Monetary Authority of Singapore is possibly foreseeing further increase in unemployment rate.

The report also noted that the move also shows the vulnerability of over-levered households and business owners to slight income variability.

“While the median household balance sheet looks fine, there is a significant fat-tail risk, in our view,” the report added.

Meanwhile, the report also noted that banks have mentioned that mortgage portfolios are stress-tested for an increase in interest rate up to 3.5%.

“It also has been suggested in various analyst briefings that mortgage NPL will increase if both interest rate and unemployment rate go up. The recent MAS tweak suggests that either one of them is necessary and sufficient condition, in our view,” the report added.