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Singapore Monetary Policy April 2018

Singapore: MAS increases slope of policy band for the first time in two years in April

At its first biannual meeting of 2018 held on 13 April, the Monetary Authority of Singapore (MAS) opted to slightly increase the slope of the rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band. The rate had been held at zero percent since April 2016. The MAS left, however, the width of the policy band and the level at which it is centered unchanged. The decision, reflecting confidence that the economy’s strong momentum will continue in 2018, shifted the Singapore dollar to a modest appreciation route.

The expectation of steady economic growth in the year and upward pressure on core prices, underpinned by sound labor market dynamics, supported the MAS’ decision. An advanced estimate for economic activity in the first quarter showed a pick-up in pace in year-on-year terms, although momentum waned somewhat in quarter-on-quarter terms. Moreover, activity was uneven, and it is expected that economic growth in 2018 will moderate from the prior year. Growth this year should come on the back of export-related sectors, which represents at the same time the major downward risk, according the MAS. Escalating tensions between the U.S. and China could lead to an all-out trade war, hitting global trade and thereby Singapore’s crucial export-related industries.

Core inflation, which excludes the cost of private road transport and accommodation, averaged 1.6% in the first two months of the year and came in above Q4’s average reading of 1.4%. Sharp increases in the prices of services and retail items offset lower prices for food. As a result, core inflation edged up.

In its press release, the MAS acknowledged the positive developments in the domestic economy while cautioning against the risks posed by the growing trade tensions between the U.S. and China. However, the overall tone of the communiqué was largely unchanged from the previous meeting and stated that the MAS will continue to closely watch economic developments.

The next meeting is scheduled for October 2018.

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