The Monetary Authority of Singapore (MAS) tightened its monetary policy on July 27, raising the rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band. This move, described as a "very slight" adjustment, defied expectations for a hold among economists, with only four out of 18 anticipating any change, according to a Bloomberg survey.
Key Details
In its statement, MAS cited persistent medium-term inflation risks and resilient economic growth as reasons for the adjustment. The central bank noted that while recent inflation data has remained benign, the need for further restraint is warranted to cap inflationary pressures. This tightening follows a more significant adjustment in April, marking the first tightening since October 2022.
Oxford Economics senior economist Sheana Yue indicated that the MAS's latest decision reflects a focus on medium-term inflation risks rather than immediate inflation trends. She noted that a breakdown in the Middle East ceasefire has contributed to rising crude and refined fuel prices, which could lead to increased imported inflation through higher fuel and freight costs. Additionally, Singapore's economy grew 5.7% year-on-year in the second quarter, according to the Ministry of Trade and Industry's advance estimates.
Background
The MAS's decision to steepen the S$NEER policy band indicates a commitment to maintaining a restrictive policy stance, despite expectations of a growth slowdown in the latter half of the year. The central bank stated,
This calibrated adjustment to the policy stance builds on the tightening in April,
reinforcing its approach to managing inflationary pressures.
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The MAS's tightening is likely to influence the Singapore dollar and could lead to increased volatility in currency markets. Higher input costs from rising fuel prices may also affect sectors reliant on imports. Investors will watch for further indications of monetary policy direction at the next MAS meeting scheduled for October.