New Reporter
29-01-24, 10:04
MAS keeps Singdollar policy unchanged, lowers overall inflation forecast for 2024
29 January, 2024
SINGAPORE – Singapore’s central bank kept unchanged its monetary policy stance that is aimed at strengthening the trade-weighted Singapore dollar to fight still-elevated inflation.
While core inflation – which excludes private transport and accommodation costs to better reflect the expenses of local households – has surprised on the upside, the Monetary Authority of Singapore (MAS) expects overall inflation to ease at a faster pace in 2024.
It lowered its estimate for overall inflation in 2024 to 2.5 per cent to 3.5 per cent, down from a previous projection of between 3 per cent and 4 per cent. But it kept its core inflation projection unchanged at an average of 2.5 per cent to 3.5 per cent for 2024.
MAS said on Jan 29 that it will maintain the prevailing rate of appreciation of the Singapore dollar nominal effective exchange rate (S$Neer) policy band, with no change to the width of the band or level at which it is centred.
“Current monetary policy settings remain appropriate. The sustained appreciation of the policy band will continue to dampen imported inflation and curb domestic cost pressures, thus ensuring medium-term price stability,” the central bank said in the first of its quarterly monetary policy statements.
MAS said that with certificate of entitlement (COE) premiums falling since November and the larger COE supply this year compared with 2023, overall inflation in 2024 is now forecast to be lower.
All 19 economists surveyed by Bloomberg News had expected MAS to maintain its overall policy settings.
The decision to stand pat was widely expected after data last week showed that core inflation rose in December from a month earlier after easing for several months. The full-year rate of increase in core prices also came in higher than the average in 2022.
Core inflation in December accelerated to 3.3 per cent year on year from 3.2 per cent in November. It averaged 4.2 per cent in 2023, up from 4.1 per cent in 2022.
Overall inflation also rose, to 3.7 per cent in December from 3.6 per cent in November. For the whole of 2023, it averaged 4.8 per cent, down from 6.1 per cent in 2022.
Inflation rates in 2023 were impacted by the increase in the goods and services tax (GST) rate to 8 per cent, MAS and the Ministry of Trade and Industry (MTI) had said on Jan 23 in their monthly joint inflation statement, which noted other price increases, such as for bus and train fares – which took effect in late 2023 – and electricity and gas tariffs in the first quarter of 2024.
MAS said on Jan 29: “Core inflation is expected to rise in the current quarter due in part to the one-off impact of the 1 percentage point hike in the GST from January this year, as well as the increase in the carbon tax.
“Water prices will rise from the second quarter of this year amid increases in production costs. Inflation for certain services components, including public transport and healthcare, could also stay elevated as less frequently adjusted prices rise to catch up with higher cost levels.”
However, MAS added: “Setting aside the transitory impact of the GST increase, core inflation is forecast to decline gradually over 2024. Lower imported costs and a slower pace of domestic cost increases should underpin the moderating trend in inflation.”
This is MAS’ first monetary policy statement since it shifted to a quarterly schedule from biannual reviews previously. It is also the first policy statement under new managing director Chia Der Jiun, who replaced Mr Ravi Menon on Jan 1.
The central bank is also hopeful for export-driven Singapore’s economic growth to pick up later in 2024, even as the near-term outlook remains depressed by the lagged effects of elevated interest rates in advanced economies.
MAS said “global final demand should pick up later this year, as lower inflation sustains private consumption expenditure, and monetary policy settings in the major economies turn more supportive”.
It said gross domestic product growth is projected to come in between 1 per cent and 3 per cent in 2024, after the economy expanded by 1.2 per cent in 2023.
Unlike most central banks worldwide that set benchmark interest rates to manage inflation, MAS uses the Singapore dollar against a trade-weighted basket of currencies as the main monetary policy tool to cool import costs – the main contributor to inflation here.
The central bank undertakes to ensure the S$Neer is kept within the boundaries – width and centre – of its policy band. This is done mainly through intervention operations – the sale or purchase of Singapore dollars – in the spot foreign exchange market.
Forex intervention operations involve the sale or purchase of US dollars against the Singdollar. Singdollar-US dollar intervention is the preferred operation, as this is by far the most liquid currency pair traded.
https://www.straitstimes.com/business/mas-keeps-singdollar-policy-unchanged-lowers-overall-inflation-forecast-for-2024
29 January, 2024
SINGAPORE – Singapore’s central bank kept unchanged its monetary policy stance that is aimed at strengthening the trade-weighted Singapore dollar to fight still-elevated inflation.
While core inflation – which excludes private transport and accommodation costs to better reflect the expenses of local households – has surprised on the upside, the Monetary Authority of Singapore (MAS) expects overall inflation to ease at a faster pace in 2024.
It lowered its estimate for overall inflation in 2024 to 2.5 per cent to 3.5 per cent, down from a previous projection of between 3 per cent and 4 per cent. But it kept its core inflation projection unchanged at an average of 2.5 per cent to 3.5 per cent for 2024.
MAS said on Jan 29 that it will maintain the prevailing rate of appreciation of the Singapore dollar nominal effective exchange rate (S$Neer) policy band, with no change to the width of the band or level at which it is centred.
“Current monetary policy settings remain appropriate. The sustained appreciation of the policy band will continue to dampen imported inflation and curb domestic cost pressures, thus ensuring medium-term price stability,” the central bank said in the first of its quarterly monetary policy statements.
MAS said that with certificate of entitlement (COE) premiums falling since November and the larger COE supply this year compared with 2023, overall inflation in 2024 is now forecast to be lower.
All 19 economists surveyed by Bloomberg News had expected MAS to maintain its overall policy settings.
The decision to stand pat was widely expected after data last week showed that core inflation rose in December from a month earlier after easing for several months. The full-year rate of increase in core prices also came in higher than the average in 2022.
Core inflation in December accelerated to 3.3 per cent year on year from 3.2 per cent in November. It averaged 4.2 per cent in 2023, up from 4.1 per cent in 2022.
Overall inflation also rose, to 3.7 per cent in December from 3.6 per cent in November. For the whole of 2023, it averaged 4.8 per cent, down from 6.1 per cent in 2022.
Inflation rates in 2023 were impacted by the increase in the goods and services tax (GST) rate to 8 per cent, MAS and the Ministry of Trade and Industry (MTI) had said on Jan 23 in their monthly joint inflation statement, which noted other price increases, such as for bus and train fares – which took effect in late 2023 – and electricity and gas tariffs in the first quarter of 2024.
MAS said on Jan 29: “Core inflation is expected to rise in the current quarter due in part to the one-off impact of the 1 percentage point hike in the GST from January this year, as well as the increase in the carbon tax.
“Water prices will rise from the second quarter of this year amid increases in production costs. Inflation for certain services components, including public transport and healthcare, could also stay elevated as less frequently adjusted prices rise to catch up with higher cost levels.”
However, MAS added: “Setting aside the transitory impact of the GST increase, core inflation is forecast to decline gradually over 2024. Lower imported costs and a slower pace of domestic cost increases should underpin the moderating trend in inflation.”
This is MAS’ first monetary policy statement since it shifted to a quarterly schedule from biannual reviews previously. It is also the first policy statement under new managing director Chia Der Jiun, who replaced Mr Ravi Menon on Jan 1.
The central bank is also hopeful for export-driven Singapore’s economic growth to pick up later in 2024, even as the near-term outlook remains depressed by the lagged effects of elevated interest rates in advanced economies.
MAS said “global final demand should pick up later this year, as lower inflation sustains private consumption expenditure, and monetary policy settings in the major economies turn more supportive”.
It said gross domestic product growth is projected to come in between 1 per cent and 3 per cent in 2024, after the economy expanded by 1.2 per cent in 2023.
Unlike most central banks worldwide that set benchmark interest rates to manage inflation, MAS uses the Singapore dollar against a trade-weighted basket of currencies as the main monetary policy tool to cool import costs – the main contributor to inflation here.
The central bank undertakes to ensure the S$Neer is kept within the boundaries – width and centre – of its policy band. This is done mainly through intervention operations – the sale or purchase of Singapore dollars – in the spot foreign exchange market.
Forex intervention operations involve the sale or purchase of US dollars against the Singdollar. Singdollar-US dollar intervention is the preferred operation, as this is by far the most liquid currency pair traded.
https://www.straitstimes.com/business/mas-keeps-singdollar-policy-unchanged-lowers-overall-inflation-forecast-for-2024