SINGAPORE -The Monetary Authority of Singapore (MAS) announced on 29 January that it kept its exchange rate-based monetary policy unchanged, as per market expectations. This is the third consecutive time that the policy has remained unchanged. In its statement, MAS said it would maintain the ‘prevailing rate of appreciation’ of the Singapore dollar nominal effective exchange rate (S$NEER) policy band without making any changes to the width or centre point of the policy band.
Unlike most central banks that control monetary policy through interest rate adjustments, MAS uses the Singapore dollar’s exchange rate against the currencies of major trading partners within an undisclosed band. Policy adjustments are made by changing the slope, centre point and width of the S$NEER policy band.
In terms of economic outlook, MAS projects Singapore’s gross domestic product (GDP) growth in 2024 to be in the range of 1-3%, supported by recovery in the manufacturing and financial sectors. A revitalised global e-cycle and easing global interest rates are expected to drive this recovery, while growth in domestic sectors is heading towards more normalised pre-pandemic levels. MAS stated, ‘Barring any other global shocks, the Singapore economy is expected to strengthen in 2024 with more broad-based growth.’
MAS expects core inflation, which excludes accommodation and transport costs, to remain high in the early part of the year due to the 1% GST hike and carbon tax. In the second quarter, water prices will increase by 20 cents per cubic metre from 1 April, as part of an adjustment to cover rising production costs. Inflation in some services such as public transport and healthcare is also expected to remain elevated due to pending price adjustments to offset rising costs.
Core inflation is expected to gradually ease towards the end of 2024 and average around 2.5-3.5% for the year, consistent with previous estimates. Without the impact of the GST hike, core inflation is expected to be in the range of 1.5-2.5%. MAS added that the current monetary policy settings are still appropriate to dampen imported inflation and suppress domestic cost pressures, thereby ensuring price stability in the medium term.
MAS lowered its overall inflation estimate for 2024 to 2.5-3.5%, lower than the previous estimate of 3-4%. The downgrade is influenced by the slump in certificate of entitlement (COE) prices since November and the increased supply of COE in 2024 compared to 2023. Ignoring the GST rate hike, headline inflation is projected in the range of 1.5-2.5%.
MAS lowered its overall inflation estimate for 2024 to 2.5-3.5%, lower than the previous estimate of 3-4%.
Risks to inflation remain, both upside and downside risks. MAS mentioned that shocks to global food and energy prices, or rising domestic labour costs, could add to inflationary pressures. Conversely, an unexpected weakening of the global economy could accelerate the easing of cost and price pressures.
Economists expect MAS to keep its policy unchanged due to concerns over high inflation and rising domestic prices. Mizuho Bank stated that both upside and downside risks to inflation remain. This suggests that a shift to a neutral policy is unlikely in the near future. ING’s Nicholas Mapa added that MAS is likely to maintain the policy until its next meeting, with potential adjustments if inflation moderates later in 2024.
This is the first time MAS has issued a scheduled monetary policy statement in January. Last year, MAS announced a change to review policies quarterly, in January, April, July, and October. This change is believed to give MAS more flexibility in the face of increasingly uncertain global economic dynamics.
