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Thread: MAS to 'raise slightly' rate of appreciation of policy band

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    Default MAS to 'raise slightly' rate of appreciation of policy band

    MAS to 'raise slightly' rate of appreciation of policy band

    Jan 25, 2022

    THE Monetary Authority of Singapore (MAS) said it is raising slightly the rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band, after it raised its inflation forecasts for 2022.

    The "pre-emptive adjustment" comes after MAS tightened its monetary policy settings in October 2021, to account for external and domestic cost pressures. Then, it had shifted the S$NEER policy band to a gradual appreciation path from zero per cent.

    The current move is "appropriate for ensuring medium-term price stability", MAS said in its monetary policy statement on Tuesday (Jan 25). Just like in October, the width of the policy band and the level at which it is centred will be kept unchanged.

    MAS raised core inflation forecasts to between 2 and 3 per cent this year, from between 1 to 2 per cent forecasted in October last year. Meanwhile, forecasts for the Consumer Price Index (CPI) all items inflation were raised to be between 2.5 and 3.5 per cent, from an earlier range of between 1.5 to 2.5 per cent.

    It noted that price increases across a broad range of goods and services have been stronger than forecasted: this includes rising energy prices, high imported food inflation amid regional supply disruptions and high CPI for airfares. The resident unemployment rate has also returned to pre-pandemic levels, MAS said.

    MAS expects core inflation will pick up in the near term due to rapidly accumulating external and domestic cost pressures, and reach 3 per cent before moderating. It should moderate in the second half of the year as supply constraints ease, but "the risks remain skewed to the upside".

    Cost increases may also lead to higher services prices amid rising private consumption, while car and accomodation cost increases may drive an increase in the CPI all items inflation. Meanwhile, the domestic labour market will likely continue to tighten and lead to strengthened wage pressures.

    But barring fresh disruptions, MAS still expects the Singapore economy will grow between 3 to 5 per cent this year.
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