Singapore’s central bank is expected to tighten monetary policy as global inflation sweeps into the city-state, fueled by geopolitical and supply-chain tensions and as Federal Reserve officials remove Covid-era support.
The Monetary Authority of Singapore, which uses the exchange rate rather than interest rates to stabilize prices, will signal Thursday that it’s seeking a stronger local dollar to buffer imported inflation, according to all 16 economists surveyed by Bloomberg.
While a predicted tightening at the April meeting was unanimous, economists were divided on which of the three currency band tools the MAS will use.
All but one of the respondents expect the central bank to raise the slope of its policy band, a move that gradually strengthens the Singapore dollar against trading partners. Half expect the entire band will be moved higher -- known as re-centering -- which is a more sudden and sharp effort to boost the currency.
Lastly, three predict policy makers will widen the band within which it guides the currency, allowing the local dollar greater scope to swing from the baseline policy goal. Only two of 16 respondents expect the MAS to use all three tools.
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Central banks around the world led by the Fed are raising interest rates to combat inflation amid risks from Russia’s invasion of Ukraine and worsening supply-chain disruptions. Singapore, which began tightening policy late last year and followed through with a rare out-of-turn move in January, is experiencing price growth well above the 2.5%-3.5% range forecast this year, even as the economy’s recovery from Covid-19 is on track.
“Tightening resource pressures in the economy and upside inflation risks mean the MAS has to be more forceful in normalizing monetary policy,” said Khoon Goh, Singapore-based head of Asia research for Australia & New Zealand Banking Group Ltd., who sees the authority tightening “aggressively” by re-centering and steepening the slope Thursday.
Here’s what else to watch for in the MAS statement:
Inflation Outlook
Closely watched will be any tweaks to MAS’s forecast for price growth this year. Besides the 2.5%-3.5% overall inflation projection in January, the authority then saw core inflation averaging 2%-3% in 2022.
Singapore’s economy is in better shape than some emerging markets in Asia whose growth recoveries are more fragile, complicating policy makers’ timeline for combating soaring inflation through rate hikes. So far in 2022, Indonesia, Thailand, Malaysia, and the Philippines have each held their benchmark rates while acknowledging rising prices.
India has signaled a hawkish turn in response to soaring prices, and China’s higher-than-expected inflation prints could prompt policy action soon.
Exiting Pandemic
First-quarter advance estimates of Singapore’s gross domestic product growth, also due Thursday morning from the Ministry of Trade & Industry, will help illustrate the city-state’s health as fresh domestic and border re-opening measures took effect.
The MAS most recently projected the economy would expand 3%-5% this year after it grew 7.6% last year.
Even as Singapore begins to shake off Covid-era restrictions, officials have warned that the healing could be gradual, including in tourism-related sectors that face labour shortages as foreign workers trickle back. The Covid-induced dearth of overseas workers should ease over the next few months, Finance Minister Lawrence Wong said at the start of March.
