SINGAPORE (CU)_As many countries across the globe begin to recover from the economic downturn brought about by the pandemic, a handful of developed nations set out to tighten their monetary policies. South Korea was the first major economy to increase its post-crisis interest rate in August, followed by Norway in September. Last week, the Reserve Bank of New Zealand also followed suit, increasing its official cash rate by a quarter percentage point to 0.5 per cent, its first such move in seven years.
However, unlike most economies, Singapore does not use interest rates to control its money supply. Instead, the Monetary Authority of Singapore (MAS), the financial regulator of the city-state, uses an exchange rate policy for this purpose. Here, the slope of the Singapore dollar nominal effective exchange rate (S$NEER) reflects how aggressive the central bank wants its policy to be.
Now, with inflationary pressures increasing amid a continuing recovery, the regulator decided to raise this slope “slightly”, from the previous “zero” slope. This would mean that the Singapore dollar would appreciate faster against a host of currencies from Singapore’s major trading partners.
On Thursday (14 October), the MAS published its preliminary third-quarter estimates of gross domestic product (GDP), which show that there has been a 6.5 per cent expansion in the Singapore economy from a year earlier, and 0.8 per cent over the previous quarter. This is in line with the regulator’s projections that the economy would “continue on its recovery path”.
“As the labour market slack is absorbed, and with imported inflation forecast to remain firm, MAS Core Inflation is expected to rise steadily from below 1 per cent on average this year to 1–2 per cent in 2022,” the central bank said.
According to MAS, Singapore’s economy is expected to grow between 6 and 7 per cent this year. The regulator also anticipates that the global economy would continue to expand at a pace that is above trend, despite “near-term uncertainties”.
