MAS tightens Singdollar policy

In a surprise move, Singapore's central bank tightened its monetary policy on Thursday, saying it expects rising inflation and aims to ensure price stability over the medium term.

The Singapore dollar jumped about 0.3 per cent after the announcement to hit a three-week high of 1.3475 per US dollar. At 11.15am, the Singapore dollar had pared its gains to the greenback to trade at 1.3497, 0.15 per cent higher.

In its tightening move, the Monetary Authority of Singapore (MAS) slightly raised the slope of its Singapore dollar nominal effective exchange rate (S$NEER) policy band, up from zero per cent previously. The width of the policy band and the level at which it is centred remain unchanged.

MAS said: "Growth in the Singapore economy is likely to remain above trend in the quarters ahead. Barring a resurgence of the (Covid-19) virus 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."

The Singapore dollar remaining firm means that for those looking to travel the exchange rates may be in their favour against other currencies, CIMB Private Banking economist Song Seng Wun explained.

For the local consumer, the stronger Singapore dollar also means that inflation may not be as high as it could be.

He noted that material costs have gone up, which means that laptops, tablets and even washing machines can become more expensive. The tightening of monetary policy helps to offset some of these rising costs for local consumers.

OCBC chief economist Selena Ling pointed to MAS' move being spurred by broader and persistent price pressures, including supply chain problems, rising energy prices, foreign manpower crunch and even the expansion of the Progressive Wage Model to more sectors and occupations.

MAS expects core inflation this year to come in near the upper end of its zero per cent to 1 per cent forecast range, and is expected to increase further to 1 per cent to 2 per cent next year.

Overall inflation will come in at around 2 per cent this year, at the top end of MAS' forecast range, and average 1.5 per cent to 2.5 per cent next year.

The Straits Times

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