Singapore’s central bank leaves policy unchanged, as expected

Monetary Authority of Singapore:

  • Will maintain the prevailing rate of appreciation of the S$NEER
    policy band
  • There will be no
    change to its width and the level at which it is centred.
  • Singapore economy is
    expected to strengthen over 2024
  • For 2024 as a whole,
    both mas core inflation and CPI-all items inflation are projected to
    come in at an average of 2.5–3.5%
  • Slightly negative
    output gap is projected to narrow further in h2 2024
  • 2024 GDP growth
    forecast to come in between 1–3%
  • MAS core inflation
    is likely to remain elevated in the earlier part of the year
  • for 2024 excluding
    the impact of the increases in the GST rate, core and headline
    inflation are forecast at 1.5–2.5%.
  • MAS core inflation
    should stay on its broadly moderating path and step down in q4,
    before falling further into 2025
  • Prospects for the
    Singapore economy should improve over the course of 2024
  • Current monetary
    policy settings remain appropriate
  • Prevailing rate of
    appreciation of the policy band is needed to keep a restraining
    effect on imported inflation
  • Prevailing rate of
    appreciation of the policy band is sufficient to ensure medium-term
    price stability
  • Core inflation
    forecast to stay elevated in immediate quarters ahead, before
    stepping down more discernibly in q4 2024 and into 2025
  • Will closely monitor
    global and domestic economic developments, and remain vigilant to
    risks to inflation and growth
  • In the near term,
    core inflation will remain around current levels
  • Excluding impact of
    GST increases, underlying inflation estimated to have been unchanged
    in Jan–Feb from q4 last year

SGD update:

Repeating what I posted earlier:

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