SINGAPORE: The Monetary Authority of Singapore (MAS) tightened monetary policy on Thursday (Apr 14), the third time in six months, as it aims to “slow the inflation momentum and help ensure medium-term price stability”.
In its half-yearly monetary policy statement, the Singapore central bank said it will re-centre the mid-point of its exchange rate policy band “at the prevailing level” of the Singdollar nominal effective exchange rate (S$NEER).
It will also “increase slightly” the rate of appreciation of the band to “exert a continuing dampening effect on inflation”. This marks the third consecutive steepening in the slope since October last year.
The width of the policy band was left unchanged.
In addition, the MAS raised its forecast for core inflation, which strips out private road transport and accommodation costs, to rise between 2.5 and 3.5 per cent this year, up from the 2 to 3 per cent projection made in January.
Headline inflation is projected to average between 4.5 and 5.5 per cent, up from the earlier range of 2.5 and 3.5 per cent.
The central bank said barring major dislocations to the global economy, the Singapore economy should grow at an above-trend pace for the second consecutive year in 2022.
“The output gap will turn slightly positive, with aggregate GDP having fully recovered from the pandemic-induced decline,” it added.
It noted that fresh shocks to global commodity prices and supply chains are adding to domestic cost pressures, which will bring core inflation to “a significantly higher level than its historical average” through the year.
Underlying inflationary pressures remain a risk over the medium term, said the MAS in its policy statement, adding that its tighter monetary policy stance, which builds on the policy moves in October and January, will “slow the inflation momentum and help ensure medium-term price stability”.
“MAS will remain vigilant to developments in the external environment and their impact on the Singapore economy,” it said.
Sixteen economists polled by Reuters expected the central bank to tighten its policy, although they were divided on how aggressive it will be and which of its settings will change as inflation emerges to be a key challenge this year.
Unlike most central banks that manage monetary policy through the interest rate, the MAS uses the exchange rate as its main policy tool. It lets the exchange rate float within an unspecified policy band, and changes the slope, width and centre of that band when it wants to adjust the pace of appreciation or depreciation of the Singapore dollar.
Before this, the MAS tightened monetary policy in October last year before following up with an out-of-cycle tightening move in January.
Separate data released on Thursday morning showed the Singapore economy expanded 3.4 per cent year on year in the first quarter of 2022, slowing from the 6.1 per cent growth in the preceding quarter.
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In its half-yearly monetary policy statement, the Singapore central bank said it will re-centre the mid-point of its exchange rate policy band “at the prevailing level” of the Singdollar nominal effective exchange rate (S$NEER).
It will also “increase slightly” the rate of appreciation of the band to “exert a continuing dampening effect on inflation”. This marks the third consecutive steepening in the slope since October last year.
The width of the policy band was left unchanged.
In addition, the MAS raised its forecast for core inflation, which strips out private road transport and accommodation costs, to rise between 2.5 and 3.5 per cent this year, up from the 2 to 3 per cent projection made in January.
Headline inflation is projected to average between 4.5 and 5.5 per cent, up from the earlier range of 2.5 and 3.5 per cent.
The central bank said barring major dislocations to the global economy, the Singapore economy should grow at an above-trend pace for the second consecutive year in 2022.
“The output gap will turn slightly positive, with aggregate GDP having fully recovered from the pandemic-induced decline,” it added.
It noted that fresh shocks to global commodity prices and supply chains are adding to domestic cost pressures, which will bring core inflation to “a significantly higher level than its historical average” through the year.
Underlying inflationary pressures remain a risk over the medium term, said the MAS in its policy statement, adding that its tighter monetary policy stance, which builds on the policy moves in October and January, will “slow the inflation momentum and help ensure medium-term price stability”.
“MAS will remain vigilant to developments in the external environment and their impact on the Singapore economy,” it said.
Sixteen economists polled by Reuters expected the central bank to tighten its policy, although they were divided on how aggressive it will be and which of its settings will change as inflation emerges to be a key challenge this year.
Unlike most central banks that manage monetary policy through the interest rate, the MAS uses the exchange rate as its main policy tool. It lets the exchange rate float within an unspecified policy band, and changes the slope, width and centre of that band when it wants to adjust the pace of appreciation or depreciation of the Singapore dollar.
Before this, the MAS tightened monetary policy in October last year before following up with an out-of-cycle tightening move in January.
Separate data released on Thursday morning showed the Singapore economy expanded 3.4 per cent year on year in the first quarter of 2022, slowing from the 6.1 per cent growth in the preceding quarter.
Continue reading...