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Singapore Monetary Policy October 2018

Singapore: MAS again increases slope of policy band at its second semi-annual meeting

At its second biannual meeting of 2018 held on 12 October, the Monetary Authority of Singapore (MAS) decided to slightly increase the undisclosed slope of the rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band. The Authority, however, left the width of the policy band and the level at which it is centered unchanged. The MAS’ latest tightening follows the first slope increase in April which raised it from zero percent, where it had previously been for two years.

The decision was underpinned by increasing upward pressure on core inflation and robust economic growth in the first half of the year. Inflationary pressures have continued to build since the MAS’ meeting in April, spurred by higher import costs due to rising oil prices and higher prices for food and retail items, as well as higher domestic inflation resulting from strong domestic demand and accelerating wage growth. MAS core inflation, which excludes accommodation and private road transport costs, rose 1.9% on average in the first two months of Q3, up from an average of 1.5% in H1. Overall, the Authority pencils in average core inflation of between 1.5–2% in 2018 and average core inflation of 1.5–2.5% in 2019.

Moreover, the Authority noted economic growth has been expanding as it had envisaged in its April 2018 policy review, with the economy having a strong run in the first half of the year. Although momentum waned in annual terms in Q3 and the MAS expects weaker growth moving towards the year, it still anticipates GDP growth in 2018 to clock in within the upper half of the 2.5–3.5% forecast range.

Considering these developments, the Authority adjusted its policy stance to encourage a gradual appreciation of the S$NEER within the policy band. The overall tone of the October communiqué was largely neutral and provided little forward guidance. While the MAS noted the positive developments seen in the Singapore economy, it also acknowledged trade tensions continue to pose a downside risk to the outlook.

The first biannual meeting of 2019 will be held in April.

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