The Monetary Authority of Singapore has tightened monetary policy, in an unexpected move, to lean against price pressures becoming more persistent.
Singapore’s central bank will re-center the midpoint of the Singapore dollar nominal effective exchange rate policy band upward to its prevailing level, the MAS said in a statement Thursday. There will be no change to the slope and width of the band.
The policy move, which builds on previous tightening, should help slow the momentum of inflation and ensure medium-term price stability, the central bank said.
The MAS will continue to monitor global and domestic economic developments, amid heightened uncertainty on both the inflation and growth fronts, it said.
Inflationary pressures will likely remain elevated in the months ahead, the MAS said. Although global supply-chain frictions are easing, external inflationary impulses have become more broad-based, reflecting underlying constraints in global commodity and labor markets. Domestically, resilient private consumption expenditure, underpinned by the tight labor market, will lead to greater pass-through of cost pressures, it said.
As such, Singapore’s core inflation is projected to rise slightly above 4% in the near term, before easing toward the end of 2022, the MAS said.
Core inflation is now forecast at between 3.0% and 4.0% this year, up from the earlier projection of 2.5%-3.5%. As car and accommodation cost increases are also expected to stay firm, headline inflation is likely to come in at 5.0%-6.0%, up from the earlier forecast range of 4.5%-5.5%, it said.
Slowing external growth momentum will weigh on Singapore’s trade-related sectors in the second half of this year, the MAS said.
However, the domestic-oriented and travel-related sectors are likely to continue their recovery and support economic expansion, the central bank said. Overall, Singapore’s 2022 gross domestic product growth is projected to come in at the lower half of the 3%-5% forecast range.