Singapore tightens policy, warns of risks even as GDP beats
By Michelle Jamrisko
(Bloomberg) — Singapore’s central bank tightened monetary policy settings for a fifth time in the past year, warning of persistent price pressures and a clouded outlook for the global and local economy.
The Monetary Authority of Singapore, which uses the exchange rate as its main policy tool, re-centered the midpoint of the currency’s policy band up to its prevailing level, according to a statement Friday. The decision follows better-than-expected economic growth last quarter, which showed signs that elevated prices and tighter financial conditions could damp demand.
“Singapore’s GDP growth will come in below trend in 2023, and downside risks have intensified,” the central bank said. “In the quarters ahead, the drag on economic activity from the globally synchronised tightening in monetary policy will intensify. While inflation should moderate, it will remain high for some time.”
Mounting global risks amid geopolitical tensions and widespread price shocks underscore the fragility of a post-pandemic recovery for trade-reliant Singapore, as the world outlook darkens. Its manufacturing output contracted and financial services stayed sluggish in the third quarter compared to the April-June period, dimming prospects.
The Singapore dollar strengthened as much as 0.7% to 1.4208 per US dollar after the MAS tightening, which also preempts the Federal Reserve that’s expected to deliver another rate hike next month. The latest US consumer price data showed the core measure rose to a four-decade high.
Singapore’s policy decision was predicted accurately by only four of 19 economists surveyed by Bloomberg. While all of them expected some sort of tightening, six had seen an adjustment to slope and nine expected the authority to employ both the moves.
“Today’s decision to only re-center likely tries to balance the downside growth risks with the upside inflation risks,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group in Singapore. “It is too soon to say this is the end of the tightening cycle. If Singapore inflation continues to surprise to the upside, then MAS will still need to respond but the hurdle for another re-centering is now very high.”
The Singapore dollar has been among the least hit currencies in Asia, depreciating 5.7% against the greenback from the start of the year through the end of Thursday while most of the region’s major currencies have dropped by double digits over the same period. Singapore officials, including at the MAS, have projected inflation will stay elevated this year and “ease more discernibly in the latter half of 2023.”
What Bloomberg Economics Says...
“Re-centering the currency band at the current slope allows sufficient strengthening in the Singapore dollar to lean against costly imported food and fuel, while also providing scope to slow appreciation if needed to respond to a swift and sharp slump in demand.”
-Tamara Henderson, Asean economist
The central bank retained its 3%–4% growth forecast for 2022, while narrowing the inflation readings to the top of their previously estimated ranges. Accordingly, core inflation is seen averaging at 4% this year and all-items is seen at 6%.
Officials convening in Washington this week for meetings organized by the International Monetary Fund and World Bank have painted a bleaker picture of the global outlook, with IMF Managing Director Kristalina Georgieva predicting one-third of the world economy will see recession this year and next.
©2022 Bloomberg L.P.
