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Singapore's central bank to raise slightly rate of appreciation of policy band

25/01/2022 12:20 PM

SINGAPORE, Jan 25  -- The Monetary Authority of Singapore (MAS) will raise slightly the rate of appreciation of its monetary policy band - Singapore dollar nominal effective exchange rate (S$NEER), as its Core Inflation is forecast to pick up further in the near term.

“The width of the policy band and the level at which it is centred will be unchanged. This move builds on the pre-emptive shift to an appreciating stance in October 2021 and is appropriate for ensuring medium-term price stability,” it said in its Monetary Policy Statement (MPS) released here today.

The central bank said its Core Inflation is forecast to be higher in the near term in view of rapidly accumulating external and domestic cost pressures.

“While Core Inflation is expected to moderate in the second half of the year from the elevated levels in the first half as supply constraints ease, the risks remain skewed to the upside,” it said.

MAS noted that the Singapore economy “remains on track to grow at a creditable pace of three to five per cent this year.

“The output gap is expected to turn slightly positive,” it said.

According to MAS, the outlook for Singapore’s inflation has shifted higher since the last MPS in October 2021, amid the confluence of recovering global demand and persistent supply-side frictions.

“There remain upside risks to inflation arising from the impact of pandemic-related and geopolitical shocks on global supply chains,” it said.

MAS said its Core Inflation stepped up over October to December last year.

Among others, energy prices have risen further while imported food inflation remains elevated due to regional supply disruptions.

“The Consumer Price Index (CPI) for airfares has also increased sharply, mostly reflecting the cost of COVID-19 testing requirements for international travel.” 

It also said that the domestic labour market has tightened, with the resident unemployment rate now close to its pre-pandemic level and wage growth above its historical average.

Against this backdrop, price increases across a broad range of goods and services have been stronger than forecast, said the central bank.

MAS Core Inflation is hence forecast to pick up further in the near term, and could reach 3.0 per cent by the middle of the year before moderating.

Taking these developments into account, MAS is revising its inflation forecasts for 2022.

MAS Core Inflation is now projected to be 2.0–3.0 per cent this year, from the 1.0–2.0 per cent expected in October.

Meanwhile, CPI-All Items inflation is expected to be 2.5–3.5 per cent, from the earlier forecast range of 1.5–2.5 per cent.

MAS formulates monetary policy by setting a path for the S$NEER policy band to ensure price stability in the medium term.




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