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Singapore Monetary Policy April 2022

Singapore: MAS tightens monetary policy further in April

At its 14 April meeting, the Monetary Authority of Singapore (MAS) raised the level and slope of the Singapore dollar’s nominal effective exchange rate (S$NEER) policy band. This monetary tightening will allow the currency to appreciate somewhat faster on an annual basis. The MAS operates a managed float regime: The Singapore dollar is allowed to fluctuate in value against a basket of currencies, but the MAS intervenes to make sure the currency’s value remains within its policy band. This guards against sharp changes in the currency’s value which could affect inflation via changes in import prices. Thus, the MAS cannot control domestic interest rates, which are instead largely determined by international lending rates and expectations of future movements in the dollar.

The decision reflected confidence in the recovery of the economy and rising concerns regarding mounting inflation. The Authority expects core inflation—the key variable that it tracks—to clock between 2.5% and 3.5% this year, higher than the previously estimated 2.0–3.0%. The MAS sees headline inflation coming in between 4.5% and 5.5%, also up from its previous estimate of 2.5–3.5%. Meanwhile, the MAS’ forecast for GDP growth in 2022 was unchanged at 3.0–5.0%. As such, the Authority decided it had space to tighten its stance.

In its communiqué, the Authority did not explicitly indicate a future policy direction, saying it will “remain vigilant to developments in the external environment and their impact on the Singapore economy”.

Looking ahead, Barnabas Gan and Peter Chia, analysts at UOB, expect further tightening:

“We expect MAS to further steepen the S$NEER gradient slightly in its upcoming October 2022 policy statement, while leaving the width of the band and the level at which it is centred unchanged. […] Inflation pressures are expected to persist in 2022 on the back of higher import prices and domestic wage growth. More pertinent perhaps, is that core inflation is also forecasted to remain above 2.0% for the rest of this year. This is important especially because MAS views core inflation to be “just under 2%” as a level that is defined to be consistent with overall price stability.”

The MAS conducts biannual meetings, with the next monetary policy statement due in October 2022.

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