The Monetary Authority of Singapore, which manages Singapore's foreign reserves, made a net loss of S$30.8 billion ($23.2 billion) for the financial year ended March 31, it said on Wednesday.
The loss occurred due to negative currency translation effects and interest expenses to mop up excess liquidity in the banking system, managing director Ravi Menon said in a speech. The MAS also sets monetary policy in Singapore.
The negative currency translation effects accounted for 70% of the loss due to a strong Singapore dollar that appreciated as the MAS tightened monetary policy to stem inflationary pressures.
"As we have explained on many past occasions, currency translation effects arise when MAS' Official Foreign Reserves (OFR) which are held in foreign currencies, are reported in Singapore dollars," according to the transcript of Mr. Menon's speech.
The trade-weighted exchange rate of the Singapore dollar saw the highest rate of appreciation in a decade, having strengthened by 6.5% over the financial year, he added.
Net interest expenses from MAS' money market operations led to the remaining 30% of the net loss, he said.
Strong appreciation pressures on the trade-weighted Singapore dollar because of heavy capital inflows necessitated the MAS to intervene by selling the Singapore currency and buying the U.S. currency.
"When MAS does this, it accumulates OFR and injects Singapore dollar liquidity into the banking system. MAS then conducts money market operations to withdraw any excess liquidity," he said.
These money market operations include MAS bills and repurchase agreements.
The MAS manages the official foreign reserves for Singapore, which totaled S$312 billion as of April 30.
The net loss does not affect the MAS' functions such as the ability to conduct monetary policy or support financial stability, neither does it affect the government's ability to spend up to 50% of the expected long-term real returns on its net assets, the MAS said in the released financial statement.
Despite the net loss, the MAS managed a small investment gain of S$600 million for the financial year.
The net loss for the financial year marks the second consecutive year the MAS has made a loss. Last year, the MAS reportedly made a loss of S$7.4 billion due to the same reasons as this year's.
