MAS keeps Singdollar policy unchanged, lowers estimate of consumer price index

SINGAPORE — Singapore's central bank kept unchanged its monetary policy stance which favours an appreciating trade-weighted Singapore dollar, but lowered its estimate of all-items consumer price index (CPI) in a sign that inflationary pressures are easing.

The Monetary Authority of Singapore (MAS) said on July 26 that it will maintain the prevailing rate of appreciation of the Singapore dollar nominal effective exchange rate policy band (S$Neer), with no change to the width of the band or the level at which it is centred — parameters that indicate how high and how fast the central bank wants the currency to appreciate.

The central bank also narrowed its economic growth forecast, saying growth momentum in the Singapore economy should improve in the second half of 2024.

Gross domestic product growth is likely to come in closer to its potential rate of two per cent to three per cent for the full year. That is compared to the Ministry of Trade and Industry's projection of one to two per cent.

MAS trimmed its projection for 2024 CPI all-items, or the headline inflation, to two per cent to three per cent per cent, from an earlier forecast of 2.5 per cent to 3.5 per cent saying the cut mainly reflected lower-than-anticipated private transport inflation in recent months.

The central bank had announced on July 23 that it is reviewing its forecast for the measure after data in CPI report for June showed headline inflation fell to an annual rate of 2.4 per cent from 3.1 per cent in May. That was the lowest rate since August 2021 and was below the 2.7 per cent forecast in a Bloomberg poll of analysts.

MAS kept its forecast for core inflation — which excludes private accommodation and transport costs and better reflects household expenses — unchanged at 2.5 per cent to 3.5 per cent.

Core inflation in June also posted a surprise retreat. It eased to 2.9 per cent, its first drop in three months and the lowest level since March 2022. The core measure, which best reflects cost pressures on most households in Singapore, was tipped to rise by three per cent in the Bloomberg poll.

MAS said core Inflation is expected to step down more discernibly in Q4 this year and into 2025.

"Notwithstanding some increases in shipping rates, global producer prices have only risen modestly thus far. Global crude oil prices have fallen from their recent peak in April, while prices of most food commodities as well as of intermediate and final goods have been stable.

Meanwhile, domestic unit labour costs should rise at a significantly slower rate this year compared to the preceding two years, amid the dissipation of labour market tightness and an anticipated pick-up in productivity, it said.

"MAS will therefore maintain the prevailing rate of appreciation of the S$NEER policy band. There will be no change to its width and the level at which it is centred" the central bank said in the July 26 monetary policy statement.

"Against this backdrop, current monetary policy settings remain appropriate. The prevailing rate of appreciation of the policy band will keep a restraining effect on imported inflation as well as domestic cost pressures, and ensure medium-term price stability.," it noted.

The MAS decision to leave its tight monetary policy settings unchanged for now was widely expected.

Unlike most central banks, which manage inflation by setting interest rates, MAS maintains price stability by allowing the value of the Singdollar to move against currencies of its main trading partners within an undisclosed band.

MAS had tightened its policy five times between October 2021 and October 2022 before pausing.

Surging inflation at home and abroad since 2021 has prompted MAS to allow the Singdollar to appreciate at a quicker pace within the policy band. Most analysts estimate that it has risen 1.5 per cent to 1.9 per cent above the midpoint of the band.

[[nid:689269]]

This article was first published in The Straits Times. Permission required for reproduction.