Singapore’s central bankers are expected to signal a potential tightening of monetary policy next year, while holding steady for now, amid rising inflation risks from supply-chain disruptions and surging energy prices.
The Monetary Authority of Singapore (MAS), which uses a currency band as its main tool rather than interest rates, will signal a more hawkish tone when it releases its twice-yearly policy statement on Thursday.
An equal number of respondents said they expect the MAS to leave its three currency band settings unchanged for now, before tightening policy at its next decision in April 2022. Only one economist sees the monetary authority raising the slope of its currency band this week by 0.5% from its current zero-appreciation level, which would be a tightening move.
Investors will be sensitive to any MAS comments on the global inflation debate, with energy prices soaring to crisis levels while economic reopening has boosted service-sector costs and wages in some countries. Attention also will focus on how MAS sees global demand faring in coming months as countries boost their vaccination drives and normalise policy.
Singapore’s currency, which strengthened against the US dollar through most of the pandemic last year, has slipped about 2.5% against the greenback since the start of 2021. An unchanged stance would mean the MAS is satisfied with the local dollar’s current path.
At the same time, the city-state is still trying to improve its employment situation, even as some of its critical industries, including financial services, continue to thrive.
The MAS guides the local dollar against a basket of currencies and adjusts the pace of appreciation or depreciation by changing the slope, width and center of a currency band.
It doesn’t disclose details of the basket, the band or the pace of appreciation or depreciation.
“MAS will remain on hold as the economic outlook remains cloudy,” and will normalize policy in April “when the economy is on a stronger footing and closer to being fully reopened,” said Chua Hak Bin, senior economist at Maybank Kim Eng Research Pte. in Singapore. “Core inflation is rising at the fastest pace since mid-2019 on the back of higher food and energy prices, but price pressures are contained by an uneven labor-market recovery and heightened measures.”