Monetary Policy in Singapore Deemed Appropriate by Central Bank

98

Singapore’s central bank, the Monetary Authority of Singapore (MAS), kept its monetary policy settings unchanged in its first review of the year, in line with expectations. The MAS announced its decision to maintain the prevailing rate of appreciation of its exchange rate-based policy band known as the Nominal Effective Exchange Rate (S$NEER), with no changes to the width and level at which the band is centered.

According to MAS, the Singapore economy is expected to strengthen in 2024, with growth becoming more broad-based. Despite elevated MAS core inflation in the earlier part of the year, the central bank anticipates a gradual decline by Q4, followed by further decreases next year.

Maybank economist Chua Hak Bin noted that the central bank’s decision to maintain the current tightening bias is based on both core and headline inflation gauges remaining above 3%, surpassing historical comfort zones. Core inflation, which was 3.3% year-on-year in December, is projected to ease to an average of 2.5–3.5% in 2024.

While GDP grew by 2.8% every year in the fourth quarter of last year, with full-year GDP at 1.2% in 2023, the trade ministry projects GDP to grow by 1-3% in 2024.

The MAS policy decision indicates an extended policy pause for now, according to OCBC economist Selena Ling. Ling suggested that the earliest window for an easing could come later in the year when core inflation eases more convincingly.

This policy decision marked the first under MAS’s new review schedule, with policy announcements now scheduled quarterly instead of semi-annually. The central bank had left monetary policy unchanged in April and October last year, reflecting growth concerns after tightening policy at five consecutive reviews before that.

As Singapore employs a unique method of managing monetary policy, adjusting the exchange rate of its dollar against a basket of currencies, the MAS’s decision underscores its commitment to balance growth and inflationary pressures in the trade-reliant economy.