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Singapore Monetary Policy July 2022

Singapore: MAS tightens monetary policy further in unscheduled meeting in July

In an unscheduled meeting on 14 July, the Monetary Authority of Singapore (MAS) re-centered the policy band of the Singapore dollar’s nominal effective exchange rate (S$NEER) to its prevailing level, with the S$NEER having been around 1.65% above the midpoint of the policy band before the announcement. This monetary tightening will support the currency and should help cool inflationary pressures. 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, 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 rising concerns over mounting inflationary pressures. The Authority raised its forecast for core inflation; in the near term, it expects inflation to rise above 4.0%, before easing toward the end of the year. For this year as a whole, the authority increased its core inflation forecast to 3.0–4.0% from 2.5–3.5%. This would mark the highest average annual inflation in a decade and be above the “just under 2.0%” inflation rate the Authority considers consistent with price stability. Meanwhile, confidence in the robustness of the economic recovery gave the Authority room to tighten its monetary policy without causing a sharp slowdown in economic activity.

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

Commenting on the outlook, Alvin Liew and Peter Chia, analysts at UOB, stated:

“After today’s off-cycle move, the second one this year, it affirmed the central bank’s conviction in dealing with the inflation challenge and achieving medium term price stability. And with the 2nd re-centering in the space of three months, we estimate that MAS policy stance has moved above the neutral setting, into the restrictive space. We expect the October policy statement release to continue as scheduled (actual date to be confirmed) but with policy already restrictive setting, we see lower probability for another off-cycle announcement in the months of Aug to Sep, unless we get an extreme acceleration in CPI inflation numbers for Jul (due on 23 August) and Aug (due on 23 September).”

The next monetary policy meeting is scheduled for 14 October 2022.

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