Singapore keeps monetary policy unchanged

The Monetary Authority of Singapore (MAS) has kept monetary policy unchanged for its third consecutive meeting.

The central bank, which uses the exchange rate as its main policy tool, said in its monetary policy statement that it had maintained the “prevailing rate of appreciation” of the currency band. The width of the band and the level at which it is centred were also unchanged.

The MAS said core inflation, which excludes costs of accommodation and private transport, is likely to remain elevated during the first quarter. It said this was due in part to the one-off impact of the 100 basis point hike in the goods and services tax (GST) introduced this month.

However, it added that core inflation should decline gradually by the fourth quarter, before falling further next year. It cited lower import costs and a slower rises in domestic costs as reasons for the projected decline.

“Current monetary policy settings remain appropriate,” it said. “The sustained appreciation of the policy band will continue to dampen imported inflation and curb domestic cost pressures, thus ensuring medium-term price stability.” 

The MAS’s decision came after the European Central Bank, the Bank of Canada and Bank Negara Malaysia last week kept their policy rates unchanged.

Singapore’s monetary policy has been unchanged since last April. it had previously tightened monetary policy on five consecutive occasions since October 2021

All of the 13 analysts polled by Reuters had expected the MAS to keep its policy unchanged at today’s meeting.

Core inflation in December was 3.3% year-on-year, compared with 3.2% the previous month. Consumer price inflation was 3.7% year on year, up from 3.6% in November. 

The central bank has maintained its core inflation forecast of 2.5–3.5% for 2024. It cut its headline inflation forecast from 3–4% to 2.5–3.5%. 

The MAS said further shocks to global food and energy prices or domestic labour costs could quicken inflation. However, it added that an unexpected weakening in the global economy could lead to a faster easing of cost and price pressures.

Singapore’s GDP, buoyed by growth in the construction and manufacturing sectors, grew 2.8% year on year in the fourth quarter of last year. 

“The Singapore economy is expected to strengthen in 2024, with growth becoming more broad-based,” the MAS said. It forecasts growth of 1–3% in 2024, supported by a recovery in the manufacturing and financial sectors as global interest rates ease. 

In a note, ING bank’s senior economist Nicholas Mapa said that with inflation still elevated yet moderating, the MAS would be likely to keep its policy unchanged for at least another meeting. 

However, he added that “should inflation moderate towards the second half of the year as forecast, the MAS could consider adjusting policy settings at their third or fourth meeting of the year”.