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MAS tightens monetary policy for second time in 3 months, raises inflation forecast

SINGAPORE — The Monetary Authority of Singapore (MAS) announced on Tuesday (Jan 25) that it has tightened its monetary policy and raised its inflation forecast for 2022, an off-cycle move in response to inflationary pressures on several fronts.

MAS tightens monetary policy for second time in 3 months, raises inflation forecast

MAS said it expects overall inflation to come in at between 2.5 and 3.5 per cent in 2022, higher than the earlier forecast range of between 1.5 and 2.5 per cent. 

SINGAPORE — The Monetary Authority of Singapore (MAS) announced on Tuesday (Jan 25) that it has tightened its monetary policy and raised its inflation forecast for 2022, an off-cycle move in response to inflationary pressures on several fronts.

The central bank, which typically makes its monetary policy decision only twice a year, in April and October, said it will "slightly" raise the rate of appreciation of its monetary policy band. The midpoint of the policy band and its width will also remain unchanged. 

MAS manages monetary policy by adjusting its exchange rate settings, rather than through interest rates as other central banks do.

By adjusting the slope of the policy band, its mid-point and width, the Singapore dollar is allowed to rise or fall against the currencies of its main trading partners within an undisclosed policy band, known as the Singapore dollar nominal effective exchange rate or S$NEER.

This off-cycle move to tighten "builds on the pre-emptive shift" since October last year, when the central bank surprised markets by also tightening monetary policy then. 

MAS said it also expects overall inflation to come in at between 2.5 and 3.5 per cent in 2022, higher than the earlier forecast range of between 1.5 and 2.5 per cent. 

Core inflation, which strips out private transport and accommodation costs, is projected to rise between 2 and 3 per cent this year — higher than the 1 to 2 per cent forecast expected in October. 

MAS said its inflation outlook shifted higher due to a confluence of recovering global demand and persistent supply side-side frictions. 

"There remain upside risks to inflation arising from the impact of pandemic-related and geopolitical shocks on global supply chains," said the central bank. 

"Energy prices have risen further while imported food inflation remains elevated due to regional supply disruptions. The CPI (consumer price index) for airfares has also increased sharply, mostly reflecting the cost of Covid-19 testing requirements for international travel."

With the resident unemployment rate close to pre-pandemic levels and wage growth above its historical average, the domestic labour market has also tightened, said MAS. 

These factors that drove global inflation higher late last year will likely remain in play for a period of time, it added. 

The last time MAS made off-cycle changes to monetary policy was in January 2015 and October 2001. The bi-annual cycle scheduled for April and October started in October 2003.

Related topics

Monetary Authority of Singapore inflation singapore dollar monetary policy Covid-19 coronavirus

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