Singapore tightens monetary policy to fight inflation

Singapore’s central bank tightened its monetary policy on Thursday, as the city state ramps up its efforts to curb inflation which has been made worse by the Ukraine crisis and global supply snags.

The policy tightening, Singapore’s third in the past six months, came as separate data showed its economic momentum waning over the first quarter.

The local dollar jumped briefly after the Monetary Authority of Singapore (MAS) re-centred the mid-point of its exchange rate policy band, known as the Nominal Effective Exchange Rate, or S$NEER. It also slightly increased the rate of appreciation of the policy band.

It was the first time in 12 years that the MAS had used these two tools simultaneously to tighten policy, underlining policymakers’ worries about potential price instability. There was no change to the width of the MAS policy band.

“The war in Ukraine has driven global inflation forecasts higher and dented the outlook for growth,” MAS said in a statement.

“The fresh shocks to global commodity prices and supply chains are adding to domestic cost pressures,” it said, warning that inflation risks remain “elevated over the medium term.”

Singapore, a major travel and business hub, made major reopening moves from the Covid-19 pandemic through late March and early April, easing local restrictions and allowing vaccinated travellers from anywhere in the world to enter without having to quarantine.

“The door is definitely not closed yet,” said Selena Ling, head of treasury research and strategy at OCBC, referring to further potential tightening in October.

The MAS manages monetary policy through exchange rate settings, rather than interest rates, because trade flows dwarf its economy. The bank allows the Singapore dollar to rise or fall against the currencies of its main trading partners within an undisclosed band.

It adjusts its policy via three levers: the slope, mid-point and width of the policy band.

The Singapore dollar strengthened by about 0.5 percent after the statement, hitting a one-week high of S$1.3552 per US dollar.

The central bank maintained its forecast for gross domestic product to expand by about 3 to 5 percent this year. The economy grew 7.6 percent in 2021, the fastest in a decade, recovering from a pandemic-induced 4.1 percent contraction the previous year.

Separate advance data on Thursday showed GDP grew 3.4 percent through January-March on a year-on-year basis, versus economists’ expectations of 3.8 percent growth.

The MAS tightened monetary policy in January in an out-of-cycle move, following an earlier tightening in October. It has joined many other global central banks, led by the US Federal Reserve, in efforts to put a cap on surging inflation. (Reuters)