Singapore steps up inflation fight with surprise central bank tightening

  • MAS refocuses the midpoint of the exchange rate policy range
  • This decision should help to slow the dynamics of inflation
  • Policy decision marks fourth tightening in nine months
  • Central bank raises inflation forecast for full year

SINGAPORE, July 14 (Reuters) – Singapore’s central bank tightened monetary policy on Thursday, in an off-cycle move, saying the move would curb inflation as the city-state joins other countries stepping up their fight against rising price pressures.

Singapore’s currency jumped broadly on the news and last rose nearly 0.7% to S$1.3963 to the dollar.

Singapore’s tightening was the fourth in the past nine months, as central banks from New Zealand to Canada recently hiked interest rates to limit soaring consumer prices. Read more

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“Obviously, MAS is very concerned about inflation. He’s just going to try to do whatever he can to curb inflation,” said Chua Hak Bin, an economist at Maybank.

The Monetary Authority of Singapore (MAS) said it would refocus the midpoint of the exchange rate policy band known as the nominal effective exchange rate, or S$NEER. There will be no change in the slope and width of the strip, he said.

“This policy decision, building on previous tightening measures, should contribute to slowing inflation dynamics and ensuring price stability over the medium term,” the MAS said in a statement.

The US Federal Reserve is set to step up its monetary tightening campaign with an oversized 100 basis point rate hike this month after a dismal inflation report showed inflation hitting four-decade highs. Read more

In April, Singapore’s central bank tightened monetary policy to slow inflation momentum in the face of soaring prices aggravated by the war in Ukraine and global supply difficulties.

The central bank typically holds two scheduled monetary policy meetings a year, in April and October.

The latest move is the second off-cycle shift this year, following an unanticipated tightening in January and leaves the door open for further rate hikes, economists say.

“That tells you that we are concerned about inflation and therefore welcome a strong currency,” said Moh Siong Sim, strategist at Bank of Singapore.

“It probably wasn’t quite planned in terms of the timing and scale of the move. That leaves open the question of how much tightening is still to come?”

The MAS manages monetary policy through the setting of exchange rates rather than interest rates, as trade flows overshadow its economy.

It adjusts its policy via three levers: the slope, the midpoint and the width of the policy band, which allow the Singapore dollar to rise or fall against the currencies of its major trading partners in an undisclosed band.

The policy shift came after the central bank said Singapore’s gross domestic product growth rate was expected to be in the lower half of the 3-5% forecast range for 2022, while inflation below The underlying is now forecast between 3.0 and 4.0% for the year, compared to an earlier forecast of 2.5 to 3.5%.

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Reporting by Anshuman Daga; Additional reporting by Chen Lin, Rae Wee and Tom Westbrook; Editing by Ed Davies and Sam Holmes

Our standards: The Thomson Reuters Trust Principles.

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