SINGAPORE: The Monetary Authority of Singapore (MAS) has tightened monetary policy for the fifth time in a year, allowing a further strengthening in the Singapore dollar to help dampen inflation.
In its half-yearly monetary policy statement released on Friday (Oct 14), the Singapore central bank said it will re-centre the mid-point of the Singapore dollar nominal effective exchange rate (S$NEER) policy band “up its prevailing level”.
The slope and width of the band were left unchanged.
The central bank noted that the global economy faces high inflation and lower growth next year, while Singapore’s economic growth will "come in below trend" in 2023 amid intensified downside risks.
At the same time, core inflation is expected to remain elevated over the next few quarters, with risks still tilted to the upside.
“MAS has assessed that, on balance, a further tightening of monetary policy is needed to help ensure that price pressures are dampened over the next few quarters,” it said.
This marks the MAS’ fifth consecutive policy tightening move since October 2021.
It described the latest announcement as “building on past tightening moves” and will help to further reduce imported inflation and curb domestic cost pressures.
“The policy stance will help dampen inflation in the near term and ensure medium-term price stability, providing the basis for sustainable economic growth,” it said.
“MAS will continue to closely monitor global and domestic economic developments, amid heightened uncertainty on both the inflation and growth fronts.”
Singapore's central bank has a unique approach to monetary policy.
Unlike most central banks that manage monetary policy through the interest rate, it uses the exchange rate as its main policy tool because Singapore is an open economy that depends heavily on trade.
This refers to the S$NEER – the exchange rate of the Singapore dollar managed against a trade-weighted undisclosed basket of currencies from Singapore’s major trading partners.
MAS allows the S$NEER to float within an unspecified band. Should it go out of this band, it steps in by buying or selling Singapore dollars.
The central bank also changes the slope, width and mid-point of the band when it wants to adjust the pace of appreciation or depreciation of the local currency based on assessed risks to Singapore’s growth and inflation.
With Singapore buying almost everything it consumes from abroad, a stronger Singapore dollar will help convert foreign prices of imports into lower local prices. The flip side of that, however, is a possible hit on the competitiveness of the country's exports.
The monetary policy decision comes alongside official advance estimates that showed the Singapore economy expanded 4.4 per cent year-on-year in the third quarter, easing slightly from the 4.5 per cent growth in the earlier quarter.
On a quarter-on-quarter seasonally adjusted basis, gross domestic product grew by 1.5 per cent, a turnaround from the 0.2 per cent contraction in the earlier three months.
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In its half-yearly monetary policy statement released on Friday (Oct 14), the Singapore central bank said it will re-centre the mid-point of the Singapore dollar nominal effective exchange rate (S$NEER) policy band “up its prevailing level”.
The slope and width of the band were left unchanged.
The central bank noted that the global economy faces high inflation and lower growth next year, while Singapore’s economic growth will "come in below trend" in 2023 amid intensified downside risks.
At the same time, core inflation is expected to remain elevated over the next few quarters, with risks still tilted to the upside.
“MAS has assessed that, on balance, a further tightening of monetary policy is needed to help ensure that price pressures are dampened over the next few quarters,” it said.
This marks the MAS’ fifth consecutive policy tightening move since October 2021.
It described the latest announcement as “building on past tightening moves” and will help to further reduce imported inflation and curb domestic cost pressures.
“The policy stance will help dampen inflation in the near term and ensure medium-term price stability, providing the basis for sustainable economic growth,” it said.
“MAS will continue to closely monitor global and domestic economic developments, amid heightened uncertainty on both the inflation and growth fronts.”
Related:
Singapore's central bank has a unique approach to monetary policy.
Unlike most central banks that manage monetary policy through the interest rate, it uses the exchange rate as its main policy tool because Singapore is an open economy that depends heavily on trade.
This refers to the S$NEER – the exchange rate of the Singapore dollar managed against a trade-weighted undisclosed basket of currencies from Singapore’s major trading partners.
MAS allows the S$NEER to float within an unspecified band. Should it go out of this band, it steps in by buying or selling Singapore dollars.
The central bank also changes the slope, width and mid-point of the band when it wants to adjust the pace of appreciation or depreciation of the local currency based on assessed risks to Singapore’s growth and inflation.
With Singapore buying almost everything it consumes from abroad, a stronger Singapore dollar will help convert foreign prices of imports into lower local prices. The flip side of that, however, is a possible hit on the competitiveness of the country's exports.
The monetary policy decision comes alongside official advance estimates that showed the Singapore economy expanded 4.4 per cent year-on-year in the third quarter, easing slightly from the 4.5 per cent growth in the earlier quarter.
On a quarter-on-quarter seasonally adjusted basis, gross domestic product grew by 1.5 per cent, a turnaround from the 0.2 per cent contraction in the earlier three months.
Continue reading...