Singapore's Economic Growth: MAS's Monetary Policy Update
The Monetary Authority of Singapore (MAS) has maintained its monetary policy settings unchanged in the first review of the year. This decision comes as the MAS expects Singapore’s economy to strengthen in 2024, with growth becoming more broad-based. The central bank will keep the prevailing rate of appreciation of its exchange rate-based policy band, known as the Nominal Effective Exchange Rate, or S$NEER, unchanged. This policy decision reflects the MAS’s commitment to ensuring price stability and anchoring inflation expectations in the medium term. The MAS’s unique method of managing monetary policy involves tweaking the exchange rate of its dollar against a basket of currencies, instead of adjusting domestic interest rates.
In December, MAS core inflation stood at 3.3% year-on-year. This was a slight moderation from its peak of 5.5% earlier in the year. The GDP for the full year of 2023 was 1.2%, and the trade ministry projects GDP to grow by 1-3% in 2024. The sustained appreciation of the policy band is expected to dampen imported inflation and curb domestic cost pressures, ensuring price stability. Despite the expectation that core inflation will remain elevated in the earlier part of the year, the MAS projects it to ease gradually. The central bank anticipates that core inflation will slow to an average of 2.5–3.5% for 2024.
The Monetary Authority of Singapore (MAS) maintained its monetary policy setting for the third straight time in the first quarterly monetary policy decision of 2024. This decision was made amid elevated cost pressure, reflecting the current economic situation in Singapore. The central bank left its monetary policy unchanged in April and October last year, reflecting growth concerns. The MAS has a current tightening bias due to elevated core and headline inflation gauges. The policy decision was the first under the new review schedule, where the central bank will make policy announcements every quarter instead of semi-annually.
The decision to keep the prevailing rate of appreciation of the S$NEER policy band unchanged indicates the MAS’s commitment to maintaining price stability and anchoring inflation expectations in the medium term. Despite the moderation of inflation pressures and improvements in growth prospects, the central bank is maintaining its tightening bias. The sustained appreciation of the policy band is expected to dampen imported inflation and curb domestic cost pressures, ensuring price stability.
The MAS expects Singapore’s economic prospects to continue improving in 2024. The GDP is projected to come in between 1% and 3%. Recovery in the manufacturing and financial sectors should be supported by the turnaround in the electronics cycle and expected declines in global interest rates. The sustained appreciation of the policy band is expected to dampen imported inflation and curb domestic cost pressures, ensuring price stability. The MAS anticipates that core inflation is projected to slow to an average of 2.5%-3.5% for 2024, excluding the transitory impact of the GST increase.
Despite the current expectation that core inflation will remain elevated in the earlier part of the year, the MAS projects it to ease gradually. The central bank expects that core inflation will slow to an average of 2.5–3.5% for 2024 as a whole. Excluding the impact of the increase in the GST rate this year, core inflation is forecast at 1.5–2.5% for 2024. The MAS’s monetary policy is centered on Singapore’s exchange rate and the need for medium-term price stability. The sustained appreciation of the policy band is expected to dampen imported inflation and curb domestic cost pressures, ensuring price stability.
MAS’s policy will maintain the prevailing rate of appreciation of the S$NEER policy band with no change to its width and the level at which the policy band is centered. The MAS adjusts the exchange rate of the SGD instead of changing domestic interest rates. The SGD exchange rate is managed against a basket of currencies of Singapore’s major trading partners. The S$NEER is a trade-weighted exchange rate, and the policy band has three parameters that the MAS can adjust: the slope, the level, and the width. The MAS made an unexpected announcement in October 2023 that it was switching to quarterly meetings to assess monetary settings from 2024.
The MAS will closely monitor global and domestic economic developments and remain vigilant to risks to inflation and growth. The sustained appreciation of the policy band is expected to dampen imported inflation and curb domestic cost pressures, ensuring price stability. Despite the expectation that core inflation will remain elevated in the earlier part of the year, the MAS projects it to ease gradually and step down by Q4 before falling further next year. The central bank’s monetary policy is centered on Singapore’s exchange rate and the need for medium-term price stability.
The information provided in this article is for general informational purposes only and should not be considered as financial advice.