Unchanged Singaporean Monetary/Exchange Rate Policy

October 14, 2013

Singapore subordinates domestic interest rate policy to an exchange rate target corridor, which is reviewed each April and October.  The latest semi-annual review concluded with no change to the slope or width of the policy band for the Singapore dollar’s nominal effective policy band (S$NEER).  The level at which the band is centered was likewise left unchanged.  This result matched decisions announced last April and in October 2012.  The slope of the band had earlier been flattened in October 2011 but increased in April 2012, the last time policy was modified.  The 18-month-old existing stance of “modest and gradual appreciation of the S$NEER policy band… is assessed to be appropriate, taking into account the balance of risks between external demand uncertainties and rising domestic inflationary pressures.”  The policy has “helped to alleviate inflationary pressures and anchor inflation expectations, as well as facilitate the restructuring of the economy.”  GDP is projected to expand between 2.5% and 3.5% in both 2013 and 2014, while core CPI inflation is likely to hover in the upper half of the 2-3% target. 

Over the last six months, the S$NEER remained in the upper half of the policy band.  It experienced some volatility, mainly reflecting market reactions to the prospective tapering of asset purchases by the US Federal Reserve.  More recently, the S$NEER appreciated on account of the relative weakness of regional currencies against the US$, as well as the Fed’s decision in mid-September to defer tapering.  With global monetary conditions still accommodative, the domestic three-month interbank rate has remained low, averaging 0.40% from April through September 2013.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission. 



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