MAS tightens monetary policy in surprise off-cycle move; core inflation forecast at 3-4%

THE Monetary Authority of Singapore (MAS) on Thursday (Jul 14) announced it would re-centre the mid-point of the Singapore dollar nominal effective exchange rate policy band “up to its prevailing level”, with no changes to the slope and width of the band.

“This policy move, building on previous tightening moves, should help slow the momentum of inflation and ensure medium-term price stability,” said the MAS in its surprise morning statement.

The decision came as the MAS upped its full-year inflation forecasts for 2022 on the expectation that overall inflationary pressures “will remain elevated in the months ahead”.

Core inflation is now expected to come in between 3.0 per cent and 4.0 per cent, up from the earlier forecast range of 2.5 per cent to 3.5 per cent.

Core prices, which exclude private transport and accommodation costs, are expected to breach the 4 per cent mark in the near term before easing in the fourth quarter, although the MAS warned that “there is considerable uncertainty over the extent of the decline.”

Meanwhile, headline inflation is now projected to come in at 5.0 per cent to 6.0 per cent for the full year, higher than the earlier forecast range of 4.5 per cent to 5.5 per cent.

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While the MAS noted that it has been gradually tightening monetary policy since October 2021, it added that “it would be prudent to take a further calibrated step to tighten monetary policy so as to lean against price pressures becoming more persistent”.

The MAS said that while global supply chain frictions are easing, external inflationary pressures are broadening, “reflecting underlying constraints in global commodity and labour markets”, while the domestic economy is expected to see more cost pass-though as private spending remains resilient in a tight labour market.

“There remain upside risks to inflation from fresh shocks to global commodity prices and domestic wage pressures,” the MAS also warned.

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The latest MAS decision came hot on the heels of Singapore reporting flat quarter-on-quarter gross domestic product growth in the second quarter, also on Thursday morning.

“The Singapore economy remains on track to expand at a creditable pace in 2022, though with slowing momentum,” said the central bank in its statement.

It added: “MAS will continue to monitor global and domestic economic developments, amid heightened uncertainty on both the inflation and growth fronts.”