Monetary Authority of Singapore’s Semi-Annual Policy Review

April 13, 2018

Monetary policy in Singapore is subordinated to the enforcement of a targeted exchange rate corridor. Officials do this by specifying three variables: the width of the Singapore dollar’s (SGD) prescribed trading corridor, the mid-point of the corridor, and the corridor’s upward or downward slope over time. In the face of downgraded growth and inflation prospects, the slope of the  corridor was flattened in October 2015 and then set at zero percent six months later. The October 2016 policy review not only kept the corridor slope at zero but also added the extra stipulation that a “neutral policy stance would likely be appropriate for an extended period.” A year ago in April 2017, officials reaffirmed that a neutral stance would still be appropriate for an extended period. While maintaining a zero percent slope at the October 2017 review, officials conspicuously did not opine that a continuing neutral stance was likely to remain appropriate for an extended time. Throughout this entire period, neither the center of the corridor nor its width were modified.

The latest review restored a slight appreciating path for the trade-weighted Singapore dollar. The justification for this restoration is laid out in a released statement but essentially rests on the anticipation of an improving labor market and persistent demand-driven upward pressure on core CPI inflation both this year and next. The statement acknowledges that “rising trade tensions between the major economies pose a downside risk to the growth outlook” and includes the qualification that “the measured adjustment to the policy stance takes into account the uncertainty in macroeconomic outcomes presented by ongoing trade tensions”.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.




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