Monetary Authority of Singapore’s Semi-Annual Policy Review

October 14, 2014

The operating target of monetary policy is an exchange rate corridor, and interest rates are kept at whatever level will meet the S-dollar’s target.

Like the previous four semi-annual reviews, the mid-point, slope, and width of the exchange rate target band were left unchanged.  The target allows for a “modest and gradual” appreciation of the trade-weighted S-dollar.  A policy tightening in April 2012 via a steepening slope in the currency corridor reversed a flattening slope that was implemented six months earlier in October 2011.  Before then, policy had been tightened in April 2010, October 2010, and April 2011.

A statement released today by MAS projects economic growth of 2.5-3.5% in both 2014 and 2015, notes that core inflation will likely exceed its historical average because of wage and food pressures, but also points out that total inflation continues to be subdued.  The existing policy is called “appropriate” and justified as follows:

The Singapore economy should expand at a moderate pace in the quarters ahead.  Wage inflation is likely to remain relatively firm, and businesses in food-related and some services sectors could further pass on cost increases.  Consequently, MAS Core Inflation is projected to stay above its historical average over the next few quarters even as CPI-All Items inflation remains subdued.

MAS will therefore maintain its policy of a modest and gradual appreciation of the S$NEER policy band.  There will be no change to the slope and width of the policy band, and the level at which it is centred.  This policy stance is assessed to be appropriate for containing domestic and imported sources of inflationary pressures, and ensuring that inflation expectations remain well anchored.  MAS will continue to closely monitor the impact of external developments and domestic restructuring on the growth and inflation prospects for Singapore.

Real GDP expanded during the middle two quarters of 2014 more slowly than the full-year projection, climbing merely 0.1% on quarter at an annualized pace in 2Q and then by 1.2% in July-September.  Both quarter saw gains of 2.4% from a year earlier.  In July-August, total and core CPI readings were 1.0% and 2.2% higher than a year before. 

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

Tags: ,


Comments are closed.