How Singapore’s monetary policy works
The Monetary Authority of Singapore’s (MAS) goal is to ensure price stability as a basis for sustainable economic growth. When inflation is low and stable, there is less uncertainty about returns on long-term investments, and firms can plan further ahead. It also helps to ensure a competitive export industry. Unlike most major economies, Singapore’s central bank manages the exchange rate, rather than the interest rate, and has done so since 1981. A small and open economy, Singapore is highly dependent on trade. The Singapore dollar’s strength relative to other currencies can thus influence prices significantly. The exchange rate is also relatively easy for the central bank to control – by buying and selling Singapore dollars. By choosing to manage the exchange rate, MAS gives up control over domestic interest rates. As capital flows in and out freely, interest rates are largely determined by foreign interest rates and how investors expect the Singapore dollar to move.
Source: MAS, Department of Statistics
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