Singapore’s central bank kept its monetary policy settings unchanged after five straight tightening moves since October 2021, pointing to rising global growth risks and ebbing inflation.
The Monetary Authority of Singapore (MAS), which uses the exchange rate as its main policy tool, maintained the slope, center and width of the currency band, according to a statement on Friday (April 14). The decision came at the same time as gross domestic product data that showed the economy contracted more than expected in the first quarter.
Twelve of 22 respondents in a Bloomberg survey had predicted the MAS would tighten, signaling it was seeking a stronger local dollar to curb imported inflation pressures. The remaining 10 expected the authority to pause.
“With intensifying risks to global growth, the domestic economic slowdown could be deeper than anticipated,” the central bank said. “While inflation is still elevated, the MAS’ five successive monetary policy tightening moves since October 2021 have tempered the momentum of price increases. The effects of the MAS’ monetary policy tightening are still working through the economy and should dampen inflation further.”
The city state’s officials have continued to cite the risks of still-elevated inflation, with MAS chairman Tharman Shanmugaratnam noting earlier this week that the central bank would focus on ensuring medium-term price stability as the basis for sustained economic growth.
Even as price gains linger at a 14-year high, policymakers also are watching for more signs that economic growth is cooling more than anticipated and bring inflation down as a result. The monetary authority’s decision follows a weaker-than-expected first-quarter economic performance, with separate figures also out on Friday showing the economy decelerated led by a decline in manufacturing activity.
The Singapore dollar weakened 0.35% following the decision indicating that some investors were hoping for further tightening by the MAS.
Singapore’s GDP growth is projected to moderate significantly this year, in line with the global goods and investment cycle downturn, the monetary authority said in the statement. MAS core inflation will remain elevated in the next few months but should progressively ease in the second half of 2023 and end the year significantly lower, it said.
The “MAS statement is somewhat dovish,” Selena Ling, the head of treasury research and strategy at Oversea-Chinese Banking Corp, said, adding that the core CPI is expected to ease materially by end-2023 and “growth projected to be below trend this year.”
Highlights from GDP print:
- GDP declined 0.7% in three months to March from previous quarter, after expanding 0.1 in 4Q
- That’s steeper than the 0.1% contraction expected in a Bloomberg survey
- On a year-on-year basis, the economy expanded 0.1% after a 2.1% gain in final quarter of 2022
- Manufacturing -6% year-on-year, after -2.6% in the previous quarter
- Construction +8.5% from year ago, after +10%
- Services industries +1.8% from year earlier, after +4%
The MAS cautioned that prospects for Singapore’s GDP growth this year have dimmed, and cited investment and manufacturing drag from tighter financial conditions.
