Singapore central bank to hold off on easing as inflation persists

Singapore’s central bank, the Monetary Authority of Singapore, meets on January 29:

  • widely expected to leave its monetary policy unchanged this month and hold off from easing its settings until it sees more evidence that inflation is falling consistently
  • All 13 analysts polled by Reuters expect no change
  • Inflation remains sticky. It came in at 3.2% in November and 3.3% in December, inching down from a peak of 5.5% at the start of 2023.

The above is from a Reuters preview, full thing is here for the SGD folks:

Singapore is often seen as a bellwether for global growth as its international trade dwarfs its domestic economy.

Note that the MAS’s key monetary policy tool is its exchange rate policy. It adjusts the exchange rate of its dollar (SGD) instead of changing domestic interest rates like most other economies.

It manages the SGD exchange rate against a basket of currencies of Singapore’s major trading partners.

  • sets the path of the policy band of the Singapore dollar nominal effective exchange rate (S$NEER)
  • this serves to strengthen or weaken the local currency against those of its main trading partners

S$NEER is a combined index made up of bilateral exchange rates between Singapore and its major trading partners

  • is a trade-weighted exchange rate

MAS permits the S$NEER to move up and down within the policy band (exact levels are not disclosed). If it goes out of this band, the MAS steps in by buying or selling Singapore dollars.

The policy band has three parameters that the MAS can adjust:

  • the slope, the level and the width
  • adjusting the slope will influence the pace at which the Singapore dollar strengthens or weakens
  • adjusting the level, or mid-point, of the policy band allows for an immediate strengthening or weakening of the S$NEER,
  • widening the policy band allows for more volatility of the S$NEER
  • these parameters are what are reviewed

The MAS made an unexpected announcement in October 2023 that it was switching to quarterly meetings to assess monetary settings from 2024. It had been meeting only twice a year, in April and October (but could, and did from time to time, meet more often, if conditions demanded an immediate change in settings, such as in 2022 when high inflation triggered two off-cycle moves).

This article was written by Eamonn Sheridan at Source