singapore

MAS tightens Singdollar policy in surprise move to ‘ensure price stability over the medium term’

SINGAPORE: The Monetary Authority of Singapore (MAS) tightened monetary policy on Thursday (Oct 14), bucking market forecasts, in a move that it said will ensure price stability over the medium-term.

In its half-yearly monetary policy statement, the Singapore central bank said it would “raise slightly” the slope of the Singdollar nominal effective exchange rate (S$NEER) policy band from zero per cent previously.

The width of the policy band and the level at which it is centred remains unchanged.

“This appreciation path for the S$NEER policy band will ensure price stability over the medium term while recognising the risks to the economic recovery,” the MAS said.

It added that growth in the Singapore economy is likely to remain above trend in the quarters ahead. Barring a resurgence of COVID-19 globally or a setback in the pace of economic reopening, output should return to around its potential in 2022.

At the same time, external and domestic cost pressures are accumulating, reflecting both normalising demand as well as tight supply conditions

It said it expects core inflation – which excludes accommodation and private transport costs – to rise to 1 to 2 per cent next year, and close to 2 per cent in the medium term.

Eleven of 13 economists polled by Reuters had predicted that the central bank would stand pat on its monetary settings. The remaining two expected the MAS to tighten slightly and begin normalising policy, in line with other global central banks.

The tightening move takes MAS away from a “zero per cent” appreciation rate of its policy band first adopted in March last year, when the economy first faced the squeeze of the COVID-19 pandemic.

This also marked the MAS’ first policy tightening move since 2018 when it increased the slope of the Singapore dollar’s policy band twice that year to allow for “a modest and gradual” appreciation.

Instead of setting interest rates, the MAS manages the economy through the currency. 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.

Preliminary data released separately on Thursday morning showed that Singapore’s economy grew by 6.5 per cent year-on-year in the third quarter of 2021, slowing down from the 15.2 per cent growth in the previous quarter.

MAS tightens Singdollar policy in surprise move to ‘ensure price stability over the medium term’ Source link MAS tightens Singdollar policy in surprise move to ‘ensure price stability over the medium term’

Back to top button