Singapore tightens monetary policy to fight inflation, growth slows in first quarter By Reuters

© . FILE PHOTO: A woman shops in a supermarket in Singapore April 24, 2017. REUTERS/Edgar Su By Aradhana Aravindan and Anshuman Daga SINGAPORE () – Singapore’s central bank tightened its monetary policy on Thursday, saying the widely predicted move will slow inflation momentum as the city-state ramps up its fight against rising prices, exacerbated by the war in Ukraine and global supply problems. The policy tightening, its third in the past six months, came after separate data showed Singapore’s economic momentum waned in the first quarter. The local dollar took a short jump after the Monetary Authority of Singapore (MAS) re-centered the center of the exchange rate policy band known as the Nominal Effective Exchange Rate, or S$NEER, at its current level. It also slightly increased the rate of appreciation of the policy margin. It was the first time in 12 years that the MAS used these two tools simultaneously to tighten policy, underscoring policymakers’ concerns about potential price instability, leading the US Federal Reserve on an aggressive path to tighten monetary conditions. The width of the MAS policy band did not change. “The war in Ukraine has pushed up global inflation forecasts and tarnished growth prospects,” MAS said in a statement. “New shocks in global commodity prices and supply chains are adding to domestic cost pressures,” it said, warning that inflation risks “remain high in the medium term”. Singapore, a major travel and business hub, has made its biggest reopening moves 24 from the COVID-19 pandemic through late March and early April, easing local restrictions and allowing vaccinated travelers from anywhere in the world to enter without quarantine. MORE CONNECTING? “The door is certainly not closed yet,” said Selena Ling, chief of treasury research and strategy at OCBC, referring to another potential tightening in October. The MAS manages monetary policy through exchange rates, rather than interest rates, as trade flows dwarf its economy and cause the Singapore dollar to rise or fall within an undisclosed range against the currencies of its major trading partners. It adjusts its policy through three levers: the slope, center and width of the policy band. All 16 economists surveyed by expected the MAS to tighten, but they were divided on what parameters it would change. The Singapore dollar strengthened about 0.5% after the statement, reaching a week-long high of S$1.3552 per dollar. The central bank maintained its forecast that gross domestic product would grow by 3% to 5% this year. The economy grew 7.6% in 2021, the fastest in a decade, and recovered from a pandemic-induced contraction of 4.1% last year. Separate advanced data on Thursday showed GDP grew at an annualized rate of 3.4% in January-March, compared with economists’ expectations of 3.8% growth, and slower than the 6.1% pace in the fourth quarter of 2021. policy in January in an out-of-cycle move, which followed a tightening in October 01-25, along with many other global central banks, led by the Fed, to cope with rising inflation. Earlier on Thursday, South Korea’s central bank raised interest rates to the highest level since August 2019 in an unexpected move. The conflict between Russia and Ukraine has added to the pressure on consumer prices, which quickly rose due to supply problems caused by the coronavirus. Singapore government has said it is ready -03- 22 to respond with fiscal and monetary measures if a deeper crisis in Ukraine affects growth and inflation. MAS said it will remain vigilant for developments in the external environment and their impact on Singapore’s economy. It expects core inflation to be 2.5-3.5% this year, versus a previous forecast of 2.0-3.0%. Headline inflation is estimated at 4.5-5.5%, up from the previous range of 2.5-3.5%. “The MAS fully recognize that if inflation continues to surprise positively, there is a possibility they will need to do more at future policy meetings,” said Khoon Goh, head of Asia research, ANZ.

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