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MAS maintains unchanged monetary policy for fourth consecutive time

MAS’s decision to maintain its exchange rate-based monetary policy underscores stability. MAS Core Inflation rose marginally to 3.4% y-o-y in Jan-Feb, driven by factors like GST rate hikes and increased utility tariffs amidst higher input and labor expenses.

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SINGAPORE: The Monetary Authority of Singapore (MAS) on Friday (12 April) announced that it will maintain its exchange rate-based monetary policy.

This marks the fourth consecutive time the central bank has kept its policy stable.

According to MAS’s monetary policy statement, the prevailing rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band will be upheld without adjustments to its width or centred level.

MAS acknowledged the resilience of global economic growth but noted potential dampening effects from prior monetary policy tightening and withdrawal of expansionary fiscal measures in major trading partners.

However, the latter part of 2024 is anticipated to witness a rebound in final demand alongside an easing of global monetary policy, with continued recovery in global manufacturing.

The growth trajectory is subject to uncertainties, including geopolitical conflicts and the timing of monetary policy adjustments.

Prospects for the Singapore economy in 2024 are cautiously optimistic, with GDP growth forecasted to range between 1% to 3%.

Recovery in the manufacturing and financial sectors is expected, supported by an upturn in the electronics cycle and global interest rate easing.

However, growth in domestic-oriented sectors is projected to normalize, slowing to pre-pandemic rates.

MAS Core Inflation averaged 3.4% year-on-year in Jan-Feb 2024, a slight increase from the previous quarter, primarily attributed to higher GST rates, increased electricity and gas tariffs due to carbon tax hikes, and elevated input and labour costs.

However, inflation for food and travel-related services moderated, with certain sectors experiencing declines.

Looking ahead, core inflation is expected to remain elevated in the near term, driven by factors such as water price hikes and rising costs in education and healthcare services.

Nevertheless, underlying inflation is anticipated to moderate as global and domestic cost pressures ease. Wage growth is expected to moderate, and productivity improvements should further alleviate inflationary pressures.

Given the anticipated strengthening of the Singapore economy and a gradual moderation in inflationary pressures, MAS affirmed that current monetary policy settings are appropriate.

“The prevailing rate of appreciation of the policy band is needed to keep a restraining effect on imported inflation as well as domestic cost pressures, and is sufficient to ensure medium-term price stability,” said MAS.

Unlike conventional central banks that rely on interest rates, MAS manages monetary policy by allowing the Singapore dollar to strengthen or weaken against the currencies of its primary trading partners within a confidential S$NEER band.

Adjustments to policy involve altering the slope, midpoint, and width of this band.

Since October 2022, when MAS re-centred the midpoint of its band, the central bank has not made any changes to its monetary policy.

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