- First tightening in 3 years
- The Singapore dollar jumps around 0.3%
- The MAS slightly increases the slope of the political band
- Only 2 economists in 13s 'expected MAS tightening
- Third quarter progress, GDP grows 6.5% year-on-year - official data
SINGAPORE, October 14 (Hfrance.fr) - Singapore's central bank unexpectedly tightened monetary policy on Thursday, making its first such move in three years, amid mounting pressure on costs caused by supply constraints and a recovery in the global economy.
The city-state joins a group of global economies that began to scale back the strong monetary stimulus of the pandemic era, such as the threat of the iInflation outweighs the growth risks posed by the coronavirus.
The central bank, which manages its policy through exchange rate parameters , said it would slightly increase the slope of its monetary policy band, previously zero percent.
Irvin Seah, senior economist at DBS, said the move was the result of growth and inflation emerging from a recession.
" This is a recalibration to be in line with economic fundamentals and I do not anticipate further tightening unless we see an upside risk in growth and inflation, "he said.
Singapore, which is recovering from last year's record recession caused by the COVID-19 pandemic, begins to reopen its s with 84% of its entire populationent vaccinated against the virus. The economy is expected to grow 6-7% this year.
Only two financial institutions, including DBS, expected a tightening, 11 more predicting the Autor ty of Singapore (MAS) would remain on hold, in a Hfrance.fr poll.
Instead of using interest rates , the MAS manages monetary policy by letting the Singapore dollar rise or fall against the currencies of its major trading partners within an unpulged range.
It adjusts its policy via three levers: the slope, the midpoint and the width of the policy band, known as the nominal effective exchange rate, or S $ NEER.
The width of the band and the level at which it is centered remain unchanged, said the MAS.
" This trajectory of appreciation of the p-bandThe S $ NEER policy will ensure price stability over the medium term while recognizing the risks to the economic recovery "the MAS said in its statement.
The central bank expects growth to return to near potential next year, despite shocks like a resurgence in the virus or a setback in the economy if it reopens.
He said that core inflation, the central bank 's preferred price measure, is expected to reach 1-2% next year, and close to 2% on average term.
This was the first tightening since October 2018. Most economists expected the MAS to start normalizing its policy until April 2022.
The increase in the slope of the policy range effectively increases the value of the local dollar in the dependent economy Singaporean trader, theoretically making imports cheaper and exports more expensive.
Policymakers around the world are increasingly concerned about the effects of the outbreak material costs, due to supply chain bottlenecks and reopening of economies after coronavirus lockdowns. find out more
For 2021, the MAS expects core inflation to be at the upper end of the 0-1% forecast range. The key price indicator rose at the fastest pace in over two years in August.
The Singapore dollar jumped around 0.3% after the policy was announced to a three-week high at 1.3475 $ S to the dollar, before dropping slightly to S $ 1.3490.
Bank of Singapore analyst Moh Siong Sim said the change was a " hawkish surprise "but modest enough to keep a lid on the currency.
"This is a small step towards standardization of policies, but it makes sense given the rise in global inflation ", did he said.
The MAS expects the growth of Singapore's flagship economy to remain above trend over the next few years quarters.
"At the same time, pressures on external and internal costs are building up, reflecting both the normalization of demand and tight supply conditions "he said.
Thursday's preliminary data showed that Singapore's economy has grown 6.5% in the third quarter, broadly in line with economists 'forecasts. learn more
The MAS said GDP growth is expected to register a slower pace but still above trend in 2022.
"I think there is a 50-50 chance that the MAS will tighten in April as well because they are doing a very slow and gradual tightening process, so they might tighten slightly again, "said Jeff Ng, economist at HL Bank. Reporting by Aradhana Aravindan, Anshuman Daga, Chen Lin, Joe Brock and Tom Westbrook; Edited by Sam Holmes
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