Singapore Central Bank on Tuesday expressed concern over the rising household debt in the city-state, describing it as worrying, and that it is "important to act now to limit build-up of leverage".
Ravi Menon, Managing Director of the Monetary Authority of Singapore (MAS), said that 5 to 10 per cent of borrowers "have probably over-leveraged their property purchases".
For example, they have total debt service payments at more than 60 per cent of their income, Menon said.
He said if mortgage rates were to rise by 3 percentage points, the proportion of borrowers at risk could reach 10 to 15 per cent.
But the top MAS official expressed confidence that Singapore economy would grow at forecast of one per cent to three per cent this year, supported by improving external environment.
Singapore recorded 1.3 per cent Gross Domestic Product growth in 2012.
MAS also said the forecast for headline inflation would be revised downwards to between two per cent and three per cent, from three to four per cent previously.
The core inflation forecast for 2013 remains at 1.5 per cent to 2.5 per cent.
In 2012, headline inflation stood elevated at 4.6 per cent due to higher residential property rentals and car prices, while core inflation, which excludes accommodation and private road transport, averaged 2.5 per cent in 2012, according to a report by the Channel News Asia.
Last week, international rating agency Moody’s had revised its outlook on Singapore’s banking system from "stable" to "negative", expressing concern over the debt level rising in the city state, according to a media report.
A rise in rates could erode Singapore lenders’ credit profile in the next 12 to 18 months, Moody's said.
It said some households in Singapore might struggle to pay off loans such as mortgages if interest rates rise, as was expected.