Time to relook monetary policy in Singapore?

SINGAPORE'S exchange rate-centred monetary policy was implemented in 1981 when Goh Keng Swee was the chairman of the Monetary Authority of Singapore (MAS). Prior to this, in the 1970s, MAS took a more eclectic approach to monetary policy, monitoring multiple indicators such as interest rates, the monetary base, credit growth and exchange rates.

To recap, since 1981, MAS has operated a Band, Basket and Crawl (BBC) regime. In particular, the Singapore dollar is managed against an undisclosed basket of currencies (trade-weighted exchange rate) rather than a single currency. Recognising the importance of ensuring some flexibility to accommodate global and regional shocks, the currency is managed within an undisclosed band. MAS intervenes in the foreign exchange market when the trade-weighted currency index is about to reach the edge of the policy band or sometimes within the band if there are concerns about "excessive" volatility.

In addition, during normal circumstances, the Singapore dollar has been allowed to appreciate, ie crawl upwards. This has been done for various reasons, including in response to the underlying structure of the economy whereby there are net liquidity withdrawals due to the government's budget surpluses and the CPF scheme, the belief that a strong currency gives a fillip to the Republic's reputation as a major trading and financial centre, and to keep a lid on imported inflation.