MAS keeps monetary policy unchanged

MAS keeps monetary policy unchanged
MAS keeps monetary policy unchanged

The Monetary Authority of Singapore (MAS) has maintained a 0% per annum rate of appreciation on the back of the uncertainty of the economy and weak inflation.

As widely expected, the Monetary Authority of Singapore (MAS) has maintained its monetary policy on Wednesday (14 April), on the back of the uncertainties brought about by the COVID-19 pandemic and weak inflation, reported Channel News Asia (CNA).

In its half-yearly monetary policy statement, Singapore’s central bank maintained “a 0% per annum rate of appreciation” of its policy band.

MAS also left the width of the policy band as well as the level at which it is centred unchanged.

Economists polled by Reuters had forecasted that MAS would maintain its exchange rate-based policy settings.

The central bank manages the economy via the currency instead of setting interest rates. It allows the exchange rate to float within an unspecified policy band, changing the band’s slope, width and centre when it wants to adjust the Singapore dollar’s pace of appreciation or depreciation.

During its last review in October 2020, MAS kept its policy unchanged, saying its accommodative stance “will remain appropriate for some time”.

This was reaffirmed by the central bank on Wednesday.

“As core inflation is expected to stay low this year, MAS assesses that an accommodative policy stance remains appropriate,” it said as quoted by CNA.

For the first time in a year in February, core inflation—which is a key consideration for the central bank’s monetary policy—turned positive. However, MAS expects the gauge, which strips out accommodation and private transport costs, to “rise only gradually” this year and remain “short of its historical average”.

“While higher global oil prices will continue to pass through to domestic prices, surplus oil production capacity should cap further large price increases. Lingering negative output gaps in a number of Singapore’s key trading partners should also keep overall imported inflation contained,” it said.

Domestically, more components of the core inflation basket of goods and services are expected to register price hikes, on the back of a recovery in private consumption and improvements in the labour market.

MAS believes the increase would be gradual “in line with subdued wage growth as the slack in the labour market will take time to be fully absorbed”. Specifically, MAS expects core inflation to come in at 0% to 1% in 2021.

MAS, however, revised its forecast for headline inflation, which includes all items, to 0.5% to 1.5%, up from -0.5% to 0.5% previously.

This comes as private transport and accommodation costs have increased, more than they were expected to, during the first two months of 2021. The former is forecasted to “stay resilient” on the back of reduced Certificate of Entitlement quotas and improving consumer sentiment.

Separately, preliminary data showed that the city-state’s economy expanded 0.2% year-on-year in Q1 2021, following three successive quarters of contraction.

The MAS noted that the global economy’s prospects had improved since October 2020 amid a steady pace of vaccine deployment in several major countries and additional fiscal stimulus in some economies.

It explained these underpinned “a marked strengthening in business and consumer confidence, which has started to feed through to a more rapid expansion in production and spending”.

The central bank expects the upturn in external demand to “sustain an above-trend pace of growth” within Singapore’s economy for the rest of 2021, albeit it could be uneven as travel restrictions continue to hinder the recovery within travel-related services.

“The Singapore economy will grow at an above-trend pace this year, but the sectors worst hit by the crisis will continue to face significant demand shortfalls,” it said.

As such, economists do not expect MAS to tweak its monetary policy settings anytime soon.

“While GDP (gross domestic product) is set to continue recovering at a decent pace, a persistent output gap is likely to remain, keeping a lid on underlying price pressures,” Alex Holmes, an economist at research firm Capital Economics was quoted by CNA as saying.

“As such, we suspect that the MAS will maintain its accommodative stance for at least the next year,” he added.

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Cheryl Chiew, Digital Content Specialist at PropertyGuru, edited this story. To contact her about this story, email:

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