Monetary policy of Singapore is getting tighter

The midpoint of Singapore’s currency’s policy band has been adjusted to the prevailing level. The Monetary Authority of Singapore (MAS), whose main regulatory tool is the exchange rate, has performed this action as a result of the previous quarter’s report on the economic growth, which turned out to be better than it was initially suggested. The report also signaled that demand might be damped by raised prices and tightening of the financial environment.

According to a statement made by the central bank of Singapore, the country’s GDP growth is expected to be below trend next year, while inflation risks are increasing. The bank also expects to see the continuing slowdown of economic activity in the upcoming quarters, which is connected with simultaneous tightening of monetary policy taking place all over the world. As it was said by the bank’s representatives, moderation of inflation is also suggested to happen, while its levels would remain considerably high for some time.

Singapore’s national currency has reached the level of 0.7% to 1.4208 per U.S. dollar after the last episode of tightening delivered by the MAS. This fact also reflects the anticipation of the Fed’s next actions, as the Federal Reserve is believed to hike the rates again next month.

As it was stated by Khoon Goh, head of Asia research at Australia & New Zealand Banking Group in Singapore, the MAS’ decision to re-center the midpoint is probably taken in an attempt to balance the risks of economic decline with the risks of further inflation growth. He said it’s currently premature to state the end of the tightening cycle, as if the inflation continues its rise, the MAS will have to react. Another re-centering would be a difficult task to perform, though.

Singapore’s official entities, including the MAS, keep forecasting high levels of inflation for the current year, while a more notable decline is expected in the second half of the following year.

The country’s central bank projects 3%-4% GDP growth in 2022, with the inflation readings being narrowed to the top of the range that was forecasted before. So, core inflation is expected at 4% for the current year, while all-items is forecasted to be at 6%.