Singapore central bank tightens policy amid solid growth
Singapore’s central bank tightened monetary policy on Friday, changing its stance for the first time in two years amid solid economic growth prospects for 2018.
The Monetary Authority of Singapore, which uses the exchange rate as its main policy tool, increased the slope of the currency band slightly from zero per cent, it said in a statement on its website. The majority of economists in a Bloomberg survey predicted a steeper slope, signalling the MAS would seek an appreciation in the Singapore dollar.
“The Singapore economy has evolved as envisaged since the October 2017 policy review, and should continue on a steady expansion path in 2018,” the MAS said. “However, an escalation of the US-China trade dispute remains possible, and if it occurs, will have significant consequences for global trade.”
In a separate report on Friday, the trade ministry said preliminary data showed gross domestic product grew 4.3 per cent in the first quarter from a year ago, in line with the median estimate in a Bloomberg survey.
The Bloomberg survey on the MAS decision showed economists were more divided than at any time in three years, underlining the difficulty policymakers had in weighing the latest tension between the US and China – Singapore’s two top trading partners – against positive developments in the domestic economy.
The Singapore dollar rose as much as 0.3 per cent to S$1.3083 against the US dollar and was at S$1.3101 as of 8:15am.
Inflation has picked up recently even though it remains at subdued levels. Consumer prices rose 0.5 per cent in February from a year ago, while the MAS’ core gauge increased to 1.7 per cent. The MAS said core inflation will reach the upper half of its 1 per cent to 2 per cent forecast range this year.
“The Singapore economy is likely to remain on its steady expansion path in 2018,” according to the statement. “Upwards pressures on MAS core inflation are expected to persist over the course of this year and beyond, underpinned by an improving labour market.”
The central bank guides the local dollar against a basket of its counterparts and adjusts the pace of its appreciation or depreciation by changing the slope, width and centre of a currency band. It doesn’t disclose details on the basket, or the band or the pace of appreciation or depreciation.