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Singapore Monetary Policy October 2022

Singapore: MAS tightens monetary policy further in October

At its meeting on 14 October, the Monetary Authority of Singapore (MAS) re-centered the policy band of the Singapore dollar’s nominal effective exchange rate (S$NEER) to its prevailing level. This monetary tightening will support the currency and should help cool imported inflationary pressure. Meanwhile, the MAS left the slope and width of the policy band unchanged.

The MAS operates a managed-float regime: The Singapore dollar is allowed to fluctuate in value against a basket of currencies, with the MAS intervening to make sure the currency’s value remains within its policy band. This prevents sharp fluctuations in the currency’s value, which could affect inflation via changes in the price of imports. However, it also means that the MAS cannot control domestic interest rates, which are instead largely determined by international lending rates and expectations of future dollar movements.

The decision reflected concerns over intensifying inflationary pressures. Core inflation rose from 3.8% in Q2 to 4.9% in July–August, while headline inflation picked up to 7.3% in July–August from 5.9% in the second quarter. The Authority expects core inflation to average around 4.0% this year and 3.5%-4.5% in 2023. This would be significantly above the “just under 2.0%” inflation rate the Authority considers consistent with price stability. Second-round effects and further shocks from the commodity markets due to geopolitical tensions pose upside risks to the inflation outlook.

In its communiqué, the Authority did not explicitly indicate a future policy direction, saying it will “continue to closely monitor global and domestic economic developments, amid heightened uncertainty on both the inflation and growth fronts”.

Commenting on the outlook, Nichlas Mapa, senior economist at ING, stated:

“We had expected a more aggressive move, but Singapore’s central bank believes that today’s move will build on past tightening carried out since October 2021 to reduce imported inflation and curb domestic cost pressures. However, given the outlook for inflation, the MAS will at least need to retain its hawkish tone until price pressures finally show signs of moderating.”

The next monetary policy meeting is scheduled for 14 April 2023.

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