Singapore Gears Up Inflation Fight With Surprise Rate Hike

Singapore Gears Up Inflation Fight With Surprise Rate Hike

On Thursday, Singapore’s central bank made an off-cycle move when it tightened its monetary policy. The monetary authority said that the move was aimed at slowing down the inflationary pressures, as the city-state also joins other central banks that are struggling to combat the rising price pressures. There was a broad jump in the Singaporean currency after the news and it had last gained by 0.7% to reach S$1.3963 against the US dollar. Further tightening from the central bank is expected in October.

Policy tightening

The Monetary Authority of Singapore (MAS) is clearly very concerned about the rising inflation in Singapore and is willing to do everything it takes for putting the brakes on increasing price pressures. This is the fourth tightening to have occurred in the last nine months and comes just after the surprise interest rate hike of 100 basis points by the Bank of Canada on Wednesday and a 75 basis points hike, yet another off-cycle move, by the Philippines central bank on Thursday.

It is also expected that the US Federal Reserve will step up its own fight against inflation and deliver a 100 basis points increase in the interest rate this month, as opposed to the 75 basis points rise that had been predicted earlier. This is after the inflation report released on Wednesday presented a rather grim look, as inflation is close to four-decade highs.

On Wednesday, both South Korea and New Zealand also delivered interest rate hikes of 50 basis points each.

MAS speaks up

The Monetary Authority of Singapore (MAS) also talked about its exchange rate policy band. This is known as the Nominal Effective Exchange Rate and the monetary authority stated that they would re-center its mid-point. It said that they would not change the band’s width or slope.

In a statement, it said that the tightening policy should be effective in slowing down the inflation momentum and provide some price stability in the medium term. The growth in the gross domestic product for the year had been forecast between 3% and 5%. The central bank said that it was likely to be close to the lower half.

Meanwhile, the core inflation for the year that had been previously forecast between 2.5% and 3.5% has now been increased to 3.0% and 4.0%. On Thursday, preliminary data showed that Singapore’s GDP had increased in the second quarter by 4.8%.

Inflation rises

The core inflation rate of Singapore, which is the price measure that the central bank likes to use, rose at its fastest pace in May in more than 10 years. It was above forecasts at 3.6% and this was primarily because of higher prices of utilities and food.

Most of the local and travel COVID-19 restrictions in Singapore have been eased since April, which has supported the economic recovery of the city-state. In the same month, the central bank tightened the monetary policy for slowing down the rising inflation, as global supply bottlenecks and the Ukraine war is increasing price pressures.