Singapore Central Bank Unexpectedly Tightens Monetary Policy

Economy

Singapore’s central bank tightened its monetary policy for the third time this year to avoid inflationary pressures becoming more persistent.

The Monetary Authority of Singapore on Thursday decided to re-centre the mid-point of the S$NEER policy band up to its prevailing level. There will be no change to the slope and width of the band.

This policy move, building on previous tightening moves, should help slow the momentum of inflation and ensure medium-term price stability, the bank said.

The central bank holds two monetary policy meetings a year, in April and October. However, this year, other than today’s unscheduled policy tightening, the bank resorted to another out-of-cycle move in January.

The MAS applies the exchange rate against a basket of currencies within an undisclosed band as its monetary policy tool.

The central bank raised its core inflation forecast for this year to 3.0 percent-4.0 percent from 2.5 percent to 3.5 percent. Overall inflation is expected to come in at 5.0-6.0 percent, higher than the earlier forecast range of 4.5-5.5 percent.

Although core inflation is projected to rise above 4.0 percent, it is forecast to ease in the fourth quarter of 2022. Still there is considerable uncertainty over the extent of the decline.

Overall economic growth is projected to come in at the lower half of the 3-5 percent forecast range for 2022 as a whole. Looking ahead, growth is expected to moderate further next year.

Data released earlier in the day by the Ministry of Trade and Industry showed that GDP was unchanged on a sequential basis in the second quarter, after posting an expansion of 0.9 percent in the first quarter.

While economic output is set to start rising again during the second half of the year, growth is likely to be weak as cooling global demand and higher interest rates drag on activity, economists at Capital Economics, said.

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