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Singapore’s MAS tightens monetary policy by adjusting SGD policy band
The move followed an unexpected tightening, with MAS projecting inflation to rise in the months ahead.
Singapore’s central bank, the Monetary Authority of Singapore (MAS), unexpectedly tightened its monetary policy settings, citing a forecast that inflation will step up in the coming months, according to Reuters.
Unlike economies that steer policy primarily through domestic interest rates, MAS manages monetary conditions by adjusting the exchange rate framework for the Singapore dollar. It sets the path for the policy band of the Singapore dollar nominal effective exchange rate, or S$NEER, which effectively strengthens or weakens the currency against major trading partners.
MAS is able to influence inflation because Singapore’s trade is large relative to its economy, Reuters noted, with gross exports and imports of goods and services more than three times Singapore’s GDP. The central bank said about 40 cents of every Singapore dollar spent domestically goes to imports, making the exchange rate a key driver of prices households pay.
Under the system, MAS does not set a precise exchange rate or control it in real time. The S$NEER is allowed to move within a policy band that is not publicly disclosed, and if it moves outside that range MAS intervenes by buying or selling Singapore dollars. MAS can adjust three parameters that determine the band, and it has held off-cycle reviews when needed, including during 2022 when high inflation prompted two additional moves.