JavaScript is off. Please enable to view full site.

Singapore tightens policy, door open for more action amid risks to outlook

Singapore tightens policy, door open for more action amid risks to outlook

Friday, October 14, 2022, 09:26 GMT+7
Singapore tightens policy, door open for more action amid risks to outlook
A view of the Monetary Authority of Singapore's headquarters in Singapore June 28, 2017. Photo: Reuters

Singapore's central bank on Friday tightened monetary policy for the fourth time this year to rein in inflation running near a 14-year high, and left the door open for further policy action amid upside risks to the price outlook and global uncertainty.

The Monetary Authority of Singapore (MAS), at a scheduled policy meeting, said it will re-centre the mid-point of the exchange rate policy band known as the Nominal Effective Exchange Rate, or S$NEER. There will be no change to the slope and width of the band.

MAS has made two off-cycle tightening moves this year, in January and July, as inflation in the city-state remains elevated.

This is the fifth round of tightening since last October, and some analysts said more policy action was possible.

Selena Ling, head of treasury research and strategy at OCBC, said the MAS move "suggests that there will be less concern about downside growth risks, which can be taken care of through the upcoming budget."

While MAS used only one lever to tighten policy, she expects there could be "more ammunition to come" at next April's scheduled review.

On Friday, the central bank said all the tightening moves so far will further reduce imported inflation but cautioned about persistent cost pressures.

"The Singapore economy will grow at a slower pace in tandem with weakening global demand," MAS said.

"However, core inflation will stay elevated over the next few quarters, as imported inflation remains significant and a tight labour market supports strong wage increases," it added in its statement.

The Singapore dollar was up about 0.3% to $1.4256 per U.S. dollar after the policy decision.

Outlook risks

Analysts said the main reason for MAS to tighten only via one lever instead of two or more was because it sees that persistent inflation will start to ease. They were split on how aggressively MAS would tighten this round.

The MAS manages monetary policy through exchange rate settings, rather than interest rates, as trade flows dwarf its economy.

It adjusts its policy via three levers: the slope, mid-point and width of the policy band, which let the Singapore dollar rise or fall against the currencies of its main trading partners within an undisclosed band.

The core inflation rate — the central bank's favoured price measure - rose to 5.1% in August year-on-year. It was 4.8% in July.

MAS said core inflation is likely to stay at about 5% for the rest of 2022, and into early 2023.

Gross domestic product (GDP) was up 4.4% in July-September on a year-on-year basis, according to advance estimates from the Ministry of Trade and Industry also released on Friday.

On a quarter-on-quarter seasonally adjusted basis, GDP expanded 1.5% in July-September.

"Q3 GDP obviously benefited from domestic and border restrictions being eased," said Song Seng Wun, an economist at CIMB Private Banking.

The central bank said growth in Singapore’s key trading partners should stay positive in 2023, but warned of risks to the outlook.

"However, further shocks, including from geopolitical tensions, could drive inflation higher and cause full-year recessions in some key economies."

Singapore's central bank on Friday tightened monetary policy for the fourth time this year to rein in inflation running near a 14-year high, and left the door open for further policy action amid upside risks to the price outlook and global uncertainty.

The Monetary Authority of Singapore (MAS), at a scheduled policy meeting, said it will re-centre the mid-point of the exchange rate policy band known as the Nominal Effective Exchange Rate, or S$NEER. There will be no change to the slope and width of the band.

MAS has made two off-cycle tightening moves this year, in January and July, as inflation in the city-state remains elevated.

This is the fifth round of tightening since last October, and some analysts said more policy action was possible.

Selena Ling, head of treasury research and strategy at OCBC, said the MAS move "suggests that there will be less concern about downside growth risks, which can be taken care of through the upcoming budget."

While MAS used only one lever to tighten policy, she expects there could be "more ammunition to come" at next April's scheduled review.

On Friday, the central bank said all the tightening moves so far will further reduce imported inflation but cautioned about persistent cost pressures.

"The Singapore economy will grow at a slower pace in tandem with weakening global demand," MAS said.

"However, core inflation will stay elevated over the next few quarters, as imported inflation remains significant and a tight labour market supports strong wage increases," it added in its statement.

The Singapore dollar was up about 0.3% to $1.4256 per U.S. dollar after the policy decision.

Outlook risks

Analysts said the main reason for MAS to tighten only via one lever instead of two or more was because it sees that persistent inflation will start to ease. They were split on how aggressively MAS would tighten this round.

The MAS manages monetary policy through exchange rate settings, rather than interest rates, as trade flows dwarf its economy.

It adjusts its policy via three levers: the slope, mid-point and width of the policy band, which let the Singapore dollar rise or fall against the currencies of its main trading partners within an undisclosed band.

The core inflation rate — the central bank's favoured price measure - rose to 5.1% in August year-on-year. It was 4.8% in July.

MAS said core inflation is likely to stay at about 5% for the rest of 2022, and into early 2023.

Gross domestic product (GDP) was up 4.4% in July-September on a year-on-year basis, according to advance estimates from the Ministry of Trade and Industry also released on Friday.

On a quarter-on-quarter seasonally adjusted basis, GDP expanded 1.5% in July-September.

"Q3 GDP obviously benefited from domestic and border restrictions being eased," said Song Seng Wun, an economist at CIMB Private Banking.

The central bank said growth in Singapore’s key trading partners should stay positive in 2023, but warned of risks to the outlook.

"However, further shocks, including from geopolitical tensions, could drive inflation higher and cause full-year recessions in some key economies."

Reuters

More

Read more

ChatGPT sets record for fastest-growing user base: analyst note

ChatGPT, the popular chatbot from OpenAI, is estimated to have reached 100 million monthly active users in January, just two months after launch, making it the fastest-growing consumer application in history, according to a UBS study on Wednesday

14 hours ago

Missing radioactive capsule found in Western Australia

Australian authorities on Wednesday found a radioactive capsule that was lost in the vast Outback after nearly a week-long search along a 1,400 km (870-mile) stretch of highway, an emergency services official said

1 day ago
;

Photos

VIDEOS

‘Taste of Australia’ gala dinner held in Ho Chi Minh City after 2-year hiatus

Taste of Australia Gala Reception has returned to the Park Hyatt Hotel in Ho Chi Minh City's District 1 after a two-year hiatus due to the COVID-19 pandemic

Vietnamese woman gives unconditional love to hundreds of adopted children

Despite her own immense hardship, she has taken in and cared for hundreds of orphans over the past three decades.

Vietnam’s Mekong Delta celebrates spring with ‘hat boi’ performances

The art form is so popular that it attracts people from all ages in the Mekong Delta

Vietnamese youngster travels back in time with clay miniatures

Each work is a scene caught by Dung and kept in his memories through his journeys across Vietnam

Latest news