MAS tightens Sing$ policy again to fight inflation

The central bank boosted its support for the Singapore dollar to fight inflation by tightening monetary policy again, though the move was not as aggressive as had been widely expected.

The Monetary Authority of Singapore (MAS) said on Friday it will recentre the midpoint of the trade-weighted Singdollar policy band up to its prevailing level. There will be no change to the slope and width of the band, it added.

The Singdollar rose after the MAS move and was up 0.6 per cent at $1.422 to the US dollar at about 10am.

"This policy shift, building on past tightening moves, will further reduce imported inflation and help curb domestic cost pressures," said MAS.

"The policy stance will help dampen inflation in the near term and ensure medium-term price stability, providing the basis for sustainable economic growth."

MAS also tweaked its forecasts, saying that core inflation in 2022 will average 4 per cent and headline inflation 6 per cent. The central bank had earlier predicted full-year headline inflation to come in at 5 per cent to 6 per cent, and core inflation at 3 per cent to 4 per cent.

It has tightened monetary policy five times since October 2021. Two of these moves were off-cycle, that is, ahead of a scheduled meeting. The next policy statement is due in April 2023.

Singapore uses its currency as the main monetary policy tool to cool import costs - the main contributor to inflation here - leaving domestic interest rates tracking those of the United States Federal Reserve.

The Singdollar has fallen 6 per cent to the US dollar since the end of September 2021, while the US dollar index has gained 19 per cent.

While weakening against the greenback, the Singdollar has appreciated a cumulative 8.9 per cent against the currencies of all of its other trade partners except the Hong Kong dollar, which is pegged to the greenback.

This has raised concerns about the erosion of Singapore's export competitiveness.

Advance estimates suggest the Singapore economy grew by a better-than-expected 4.4 per cent year on year in the third quarter, easing slightly from the 4.5 per cent growth in the second quarter.

On a quarter-on-quarter seasonally adjusted basis, the economy expanded 1.5 per cent, a turnaround from the 0.2 per cent contraction in the preceding quarter.

This means the economy avoided a technical recession, usually defined as two straight quarters of negative growth.

Ms Cheryl Chan, senior vice-president for capital markets at online investment platform ADDX, said the MAS has taken a balanced approach with monetary policy that is appropriate to the current global economic environment.

Most analysts believe that the US and European economies are likely to enter recession in 2023, while China is already slowing.

"The MAS took the calibrated approach of not allowing the pace of currency appreciation to quicken further," Ms Chan said, adding that the Singdollar is already one of the strongest-performing currencies in 2022. "A Singapore dollar that is too strong could hurt exports and economic growth at a time when the risk of a full-scale global recession cannot be written off."

Mr Brian Tan, senior regional economist at Barclays Bank in Singapore, said he expects no more MAS tightening in 2023.

However, he said the risk of another policy tightening remains significant if inflation expectations rise further because of the scheduled goods and services tax (GST) rate increase in January 2023.

Analysts say consumers worldwide usually rush to buy expensive items such as cars, smart TVs and mobile phones ahead of an increase in taxes on consumption such as the GST.