Singapore's central bank tightened its monetary policy settings on Tuesday in its first out-of-cycle move in seven years, as global supply constraints and brisk economic demand elevate inflation pressures across the region.
The city-state's trade-dependent
economy is highly susceptible to swings in global inflation and the central bank's sudden move comes as price pressures ring alarm bells for policymakers elsewhere in Asia.
Selena Ling, head of treasury research and strategy at OCBC, said she expects the central bank to tighten again in April, describing Tuesday's move as only a "slight tightening." "If they had announced a more aggressive tightening today, then that would have dampened expectations for April," she said.
The Monetary Authority of
Singapore (MAS), which manages
monetary policy through exchange rate settings, said it would slightly raise the rate of appreciation of its policy band.
The width of the band, known as the Nominal Effective Exchange Rate, or S$NEER, and the level at which it is centered will be unchanged.
The MAS last surprised with an off-cycle move in January 2015 when it eased its policy after a collapse in global oil prices.
Last year, many Asia-Pacific economies largely shrugged off inflationary threats that had rattled policymakers in Europe and the United States but that thinking now appears to be shifting.
Australia's core inflation flew to its fastest annual pace since 2014 in the December quarter, data showed on Tuesday, challenging the central bank's benign interest rate outlook.
In Japan, a country renowned for its stubbornly tepid price growth, policymakers have also acknowledged creeping inflation pressures.
Singapore's policy move comes just a day after data showed core inflation in the city-state climbed in December by the fastest pace in nearly eight years.
"This move builds on the pre-emptive shift to an appreciating stance in October 2021 and is appropriate for ensuring medium-term price stability," the MAS said, referring to its tightening move late last year.
The central bank is due to review its stance at a scheduled semi-annual policy meeting in April, when it was widely expected by economists to tighten again.
The
Singapore dollar strengthened to 1.3425 versus the U.S. dollar, its highest since October 2021.
'DOUBLE TIGHTENING'
Singapore's bellwether
economy is expected to grow 3-5%, unchanged from earlier forecasts.
"2022 will be year of double tightening for
Singapore - both fiscal and monetary levers will grind tighter," said OCBC's Ling.
The MAS expects Singapore's economic recovery, which has so far been led by the trade-related and services sectors, to extend to the domestic-oriented and travel-related sectors this year as COVID-19 restrictions are eased.
Singapore has vaccinated 88% of its 5.5 million people against COVID-19 and 55% have received booster shots.
The MAS forecasts core inflation to be 2.0–3.0% this year, from the 1.0–2.0% expected in October. Headline inflation is expected to be 2.5–3.5%, from the earlier forecast range of 1.5–2.5%.
"While core inflation is expected to moderate in the second half of the year from the elevated levels in the first half as supply constraints ease, the risks remain skewed to the upside," the MAS said.
Singapore will release its annual budget on Feb. 18, when the government is expected to announce the timing for an anticipated hike in goods and services tax.
The city-state's
economy grew 7.2% in 2021, its fastest pace in over a decade, rebounding from a record 5.4% contraction in 2020. The government has spent more than S$100 billion over the last two years to cushion its economy from the impact of the pandemic.
Instead of interest rates, the MAS manages policy by letting the local dollar rise or fall against the currencies of its main trading partners within an undisclosed band.
It adjusts its policy via three levers: the slope, mid-point and width of the policy band.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
Dear Reader,
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.
Digital Editor
First Published: Tue, January 25 2022. 10:53 IST
RECOMMENDED FOR YOU