MAS tightens Singdollar policy in surprise move to “ensure price stability in the medium term”

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SINGAPORE: The Monetary Authority of Singapore (MAS) tightened monetary policy on Thursday, October 14, going against market expectations, which it says will ensure price stability over the medium term.

In its biannual monetary policy statement, Singapore’s central bank said it would “slightly increase” the slope of the nominal effective exchange rate singdollar (S $ NEER) policy range from 0% previously.

The width of the policy band and the level at which it is centered remain unchanged.

“This appreciation trajectory of the S $ NEER policy band will ensure price stability over the medium term while recognizing the risks to the economic recovery,” MAS said.

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He added that the growth of Singapore’s economy is expected to remain above trend in the coming quarters. Unless there is a resurgence of COVID-19 around the world or a slowdown in the pace of economic reopening, production is expected to return to around its potential in 2022.

At the same time, external and internal cost pressures are building up, reflecting both the normalization of demand and tight supply conditions.

He said he expects core inflation – which excludes accommodation and private transportation costs – to rise to 1% to 2% next year, and close to 2% on average. term.

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Eleven of 13 economists polled by Reuters had predicted that the central bank would respect its monetary parameters. The other two expected the MAS to tighten slightly and begin to normalize its policy, in line with other global central banks.

This tightening move moves the MAS away from a “zero percent” appreciation rate from its policy range first adopted in March of last year, when the economy first faced downturn. the pressure of the COVID-19 pandemic.

It also marked the first policy tightening of the MAS since 2018, when it increased the slope of the Singapore dollar’s policy range twice that year to allow for “modest and gradual” appreciation.

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Instead of fixing interest rates, the MAS manages the economy through money. He lets the exchange rate float within an unspecified policy range, and changes the slope, width, and center of that range when he wants to adjust the pace of the Singapore dollar’s appreciation or depreciation.

Preliminary data released separately on Thursday morning showed Singapore’s economy grew 6.5% year-on-year in the third quarter of 2021, slowing from the 15.2% growth in the previous quarter.

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