Singapore unexpectedly tightens monetary policy to fight inflation

Analysts expect further action by the Monetary Authority of Singapore at its semi-annual policy meeting in April

The central bank said the move is ‘appropriate for ensuring medium-term price stability’

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Shoppers on Orchard Road in Singapore. The city state’s central bank said it expects core inflation to be 2.0–3.0 per cent this year. Photo: Bloomberg

Published: 3:00pm, 25 Jan 2022

Singapore’s central bank said on Tuesday it was tightening its monetary policy settings, in an out-of-cycle move, as global supply constraints and brisk economic demand fan inflation risks.

The Monetary Authority of Singapore (MAS) manages monetary policy through exchange rate settings, rather than interest rates, letting the local dollar rise or fall against the currencies of its main trading partners within an undisclosed band.

It adjusts its policy via three levers: the slope, midpoint and width of the policy band, known as the Nominal Effective Exchange Rate, or S$NEER.

The MAS said it would raise slightly the rate of appreciation of its policy band. The width of the policy band and the level at which it is centred will be unchanged.

Selena Ling, head of treasury research and strategy at OCBC, said she expects the central bank to tighten again in April, describing Tuesday’s move as only a “slight tightening” of the slope.

“If they had announced a more aggressive tightening today, then that would have dampened expectations for April,” Ling said.