In an unscheduled move on Thursday, July 14, the Monetary Authority of Singapore (MAS) further tightened its monetary policy, making it the fourth such adjustment since October last year. This off-cycle decision saw the MAS re-centering the mid-point of the Singapore dollar nominal effective exchange rate (S$NEER) policy band up to its prevailing level and slightly increasing the rate of appreciation of the band. This action is intended to exert a continuing dampening effect on inflation, which is expected to rise above 4% in the near term and projected to be between 3% and 4% for the year, up from an earlier forecast of 2.5% to 3%.
Analysts generally viewed this move as a strong signal of MAS's commitment to control inflation, even though the timing was somewhat surprising. While some, like ING economist Nicholas Mapa, had anticipated an off-cycle tightening due to short-end rates signaling a stronger currency, others, including CIMB Private Banking economist Song Seng Wun, expected it later. Selena Ling, chief economist at OCBC Bank, noted the latest off-cycle move signifies "policy resolve" to combat imported inflation. The Singapore dollar appreciated about 0.3% against the US dollar immediately following the announcement, reaching a three-week high of S$1.3475 before slightly easing.
The MAS manages its monetary policy through exchange rate settings, using three levers: the slope, level, and width of the S$NEER policy band. This latest tightening aims to strengthen the Singapore dollar, thereby reducing the impact of rising import prices. While the move is expected to help contain imported inflation, experts like Ms. Ling cautioned it might not completely offset growing inflationary pressures. The hurdle for further off-cycle moves is considered very high by Ms. Ling, though she didn't rule out additional tightening given the dynamic economic conditions.
Looking ahead, analysts believe further tightening is a possibility at the MAS's scheduled October meeting. Mr. Mapa of ING and Mr. Yu Liuqing of the Economic Intelligence Unit both foresee potential additional action, especially with forecasts pointing to even higher inflation. The aggressive nature of this tightening, particularly given it's the second off-cycle move this year (the first being in January), highlights the central bank's proactive stance in addressing price stability concerns. Singapore's GDP growth is still projected to be above trend for 2022, albeit at a slower pace.
