Singapore’s core inflation would have peaked at 7.2% if not for MAS’ policy moves: Alvin Tan

HAD the Monetary Authority of Singapore (MAS) not moved to tighten monetary policy since October 2021, core inflation would have reached 7.2 per cent year on year at its peak. This is 1.9 percentage points higher than the actual peak of 5.4 per cent year on year in the first quarter of 2023.

“So inflation would have stayed higher for much longer and brought about much more significant increases in the cost of living for households,” said Minister of State for Trade and Industry Alvin Tan in Parliament on Wednesday (Aug 2).

Tan was responding to questions from Members of Parliament (MPs) on the record S$30.8 billion net loss posted by the central bank for the financial year ended Mar 31, 2023.

Progress Singapore Party Non-Constituency MP Hazel Poa asked what the benefits of a strong Singapore dollar policy are, while People’s Action Party MP Yip Hon Weng asked how MAS balances managing inflation with incurring losses.

In his reply, Tan, who is also an MAS board member, said the central bank’s monetary policy is focused on keeping inflation low and ensuring medium-term price stability. “It does not take into account any potential impact on MAS’ profits, because to do so will undermine its mission.”

This is similar to how other major central banks conduct their monetary policy. Many of them have also reported losses arising from their monetary policy, noted the minister.

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Through its five tightening moves since October 2021, MAS has been successful in curbing imported inflationary pressures, said Tan. Between May 2022 and June 2023, Singapore’s import price index fell by some 14 per cent, in turn contributing to lower domestic inflation on a month-on-month seasonally adjusted basis. Core inflation fell from its peak of 9.1 per cent in June 2022 to 2.2 per cent in June 2023.

Yip also asked about the impact of MAS’ net loss on the government’s Budget position. Responding, Tan said the net investment returns (NIR) are based on the long-term expected returns from investments by MAS, GIC and Temasek, and thus are not affected by short-term performance.

Accordingly, MAS’ net loss in the last financial year has no impact on the NIR available to the government, said Tan.

Similar to other statutory boards, MAS makes contributions to the government’s consolidated fund in view of corporate income tax. This is based on 17 per cent of the net profit for the year after offsetting cumulative losses from previous financial years.

“The government recognises that MAS’ contributions will vary considerably from year to year and has therefore smoothened the revenue volatility by requiring the annual contributions made by MAS to be paid in equal proportions over a period of three years,” said Tan.

Given the net loss recorded, MAS will not accrue a contribution to the government’s consolidated fund for that financial year; it will nonetheless make a contribution of S$0.4 billion to the fund in the current financial year based on past profits, Tan added.