Singapore stands firm on inflation – as Philippines, Indonesia start to sweat

Singapore’s efforts to cool rising prices are ‘on track’, says outgoing central bank chief Ravi Menon – but ‘it’s not mission accomplished yet’

The bank has kept monetary settings unchanged, even as its regional peers turned hawkish to prop up their currencies and stem inflationary pressures

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People buy fruit at a neighbourhood market in Singapore. The city state’s core inflation rate, which excludes private transport and accommodation costs, declined to 3 per cent in September from 3.4 percent in August, according to official data. Photo: EPA-EFE

Published: 9:18am, 30 Oct 2023

Singapore’s monetary policy “remains appropriately tight”, according to the city state’s central bank chief Ravi Menon who signalled that authorities aren’t necessarily under pressure to do more even as regional peers turn hawkish.

Policymakers in the Philippines and Indonesia this month delivered surprise rate increases to prop up their currencies and stem inflationary pressures. Goldman Sachs economists expect the two Southeast Asian nations to take the rates higher.

Unlike most central banks that rely on interest rates to manage inflation, trade-reliant Singapore uses the exchange rate. The Monetary Authority of Singapore kept monetary settings unchanged earlier this month and maintained the appreciating path of its exchange rate at its twice-yearly reviews in 2023. It will announce policy decisions quarterly from 2024.

The logo of the Monetary Authority of Singapore, the city state’s central bank, is seen at its headquarters. Photo: Reuters

“That’s the beauty of the trade-weighted exchange rate,” the MAS managing director said in an October 27 interview when asked whether he sees the need for Singapore to tighten policy further. “It’s regardless of how other countries’ exchange rates move.”

Keeping it on an appreciating path means it is continuing to strengthen against other currencies and lowering imported inflation, exerting a restraining effect on the economy, Menon said.

While the Singapore currency has declined against the dollar this year on a spot return basis, it has strengthened against seven of 10 larger peers in Asia including the Malaysian ringgit and Chinese yuan.

Menon, who is stepping down as MAS chief after 12 years and retiring from public service on December 31, stressed that more frequent policy announcements doesn’t mean more frequent tweaks. The central bank, which made two unscheduled moves in 2022, is still keeping to its medium-term orientation, he said.