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MAS keeps monetary policy unchanged in April

At its 14 April meeting, the Monetary Authority of Singapore (MAS) maintained the prevailing rate of appreciation of the Singapore dollar’s nominal effective exchange rate (S$NEER). Moreover, the Bank kept the width and the level at which the policy band is centered unchanged, deeming that the current policy stance will continue to reduce imported inflation and keep a lid on domestic prices.

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 to hold fire was driven by growth concerns as well as the Bank’s assessment that core inflation will ease materially by end-2023. The economy contracted in quarterly terms in Q1 and the Bank expects below-trend growth in 2023. Meanwhile, core inflation is now expected by the MAS to end 2023 at around 2.5%, slightly above the “just under 2.0%” inflation rate the Authority considers consistent with price stability.

In its communiqué, the Authority stated that its current policy stance is “sufficiently tight” for securing medium-term price stability. Key risks to this inflation outlook include, on the upside, new supply shocks in global commodity markets, and, on the downside, sharper-than-expected downturns in advanced economies.

Commenting on the decision, analysts at the EIU, stated:

“This decision mimics several other central banks in Asia, namely Indonesia, South Korea and India, highlighting a preference to monitor global uncertainties until the situation becomes clearer and adopting a balanced approach between supporting growth and fighting inflation. The uncertainty was recently complicated by fragility in the Western financial system. […] While Singapore’s core inflation is still elevated, a stronger [S$NEER] since October 2021 has put downward pressure on imported inflation.”

The next meeting of the MAS will be in October.