In its July 2022 Monetary Policy Statement, the Singaporean monetary authority MAS re-centred the mid-point of the Singapore dollar nominal effective exchange rate (S$NEER) policy band up to the then-prevailing level.
There was no change to the slope and width of the band. While Singapore’s growth momentum was expected to slow, MAS had assessed that it was prudent to tighten monetary policy further and lean against price pressures becoming more persistent. This was its fourth tightening move since October 2021.
Over the last three months, the S$NEER has broadly appreciated and is now close to the top of the policy band. The three-month S$ Singapore Interbank Offered Rate rose to 3.4% from 2.5% in July, while the Singapore Overnight Rate Average increased to 3.4% from 2.1%
In essence, the tightening will allow the Singapore dollar to appreciate and make imports cheaper which will in turn keep the prices of goods lower.
However, MAS foresees inflation to remain high in most of the nation’s key trading partners in the near term, while global growth moderates. It added that the Singapore economy will grow at a slower pace in tandem with weakening global demand. Core inflation it said will stay elevated over the next few quarters, as imported inflation remains significant and a tight labour market supports strong wage increases. Inflation is projected to ease more discernibly in the latter half of 2023, although there is considerable uncertainty around the outlook for both inflation and growth.
GDP growth is now projected to come in at 3–4% in 2022. In 2023, the economy is forecast to grow at a pace that is below the trend, which could cause the current mildly positive output gap to reverse.
