© Reuters. FILE PHOTO: The Monetary Authority of Singapore (MAS) logo is shown in this file photo dated February 21, 2013 in their Singapore building. REUTERS / Edgar Su / File Photo
SINGAPORE (Reuters) – The Central Bank of Singapore unexpectedly tightened its monetary policy on Thursday, saying this move will ensure price stability in the medium term.
The Monetary Authority of Singapore (MAS) controls monetary policy through exchange rate adjustments rather than interest rates, and allows the Singapore dollar to rise or fall within an undisclosed band against the currencies of its major trading partners.
It adjusts its policy through three levers: the slope, the middle, and the width of the policy band, known as the Nominal Effective Exchange Rate or S $ NEER.
The MAS said Thursday it would slightly increase the slope of the policy band from previously zero percent. The width of the tape and the plane it is centered on remain unchanged, it said.
“This appreciation path for the S $ NEER policy tape will ensure price stability in the medium term and at the same time recognize the risks to the economic recovery,” said the MAS in its statement. Core inflation is expected to rise to 1-2% next year and to almost 2% in the medium term.
The Singapore dollar rose about 0.3% after the announcement, hitting a three-week high of SGD 1.3475 per dollar.
Eleven out of 13 economists polled by Reuters had forecast that the MAS would stick to its policy unchanged, while only two had expected a slight tightening.
“The economic and inflation valuation definitely sounds more optimistic for 2022 and it looks like they are focused on cost pressures including labor costs, both domestically and import,” said Selena Ling, Head of Treasury Research & Strategy. OCBC Bank.
“Also surprising is that they have dropped all reservations about downside risks, except for a brief sentence about the emergence of a vaccine-resistant virus strain or severe global economic pressures.”
Separate preliminary data from Thursday showed that Singapore’s economy grew 6.5% in the third quarter, broadly in line with economists’ forecast.
The MAS said GDP growth will be 6% to 7% this year and will see a slower, but still above trend, pace in 2022.
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