SINGAPORE: Singapore’s central bank said a resurgence in global food and oil prices could mount pressure on monetary authorities globally to further tighten their policies.
“There are nascent supply-side sources of fresh price pressures” as oil skirts close to US$100 a barrel, the Monetary Authority of Singapore said in its biannual macroeconomic review published Monday.
There “remains a risk that adverse supply side shocks from extreme weather events, including a strong El Niño, and an escalation in geopolitical tensions, could lead to a surge in food and energy prices,” it said. “Upside inflation surprises could prompt further policy tightening or keep rates elevated for longer.”
Indonesia and the Philippines both delivered surprise interest rate hikes in the past weeks and signalled they could do more to support their currencies and stem price risks.
As for Singapore, which uses the exchange rate as its main policy tool and had kept settings unchanged earlier this month, the central bank chief Ravi Menon said the monetary policy “remains appropriately tight”.
The MAS will “maintain the prevailing rate of appreciation of the S$NEER policy band,” the central bank said in the report Monday, recapping its Oct 13 decision to keep the the Singapore dollar’s nominal effective exchange rate on an appreciating path. “There will be no change to its width and the level at which it is centred.”
Traders see an average of 13 basis point hikes in the Asia Pacific region, excluding China, over the next six months, according to market implied policy rates.
The MAS chief signalled in an Oct 27 interview that authorities aren’t necessarily under pressure to do more even as regional peers turn hawkish. Keeping the trade-weighted exchange rate on an appreciating path means it is continuing to strengthen against other currencies and lowering imported inflation, Menon said.
Singapore’s open economy is highly linked to international trade and financial conditions, and almost 40 cents of every dollar spent domestically is on imports.
The MAS, which tightened monetary policy five times in the past two years, will next announce its decision in late January when it starts shifting to a quarterly release from a twice-yearly schedule.
Singapore’s central bank said in the report that the city state’s core inflation may encounter some volatility for the rest of 2023 and into early next year due to higher electricity and gas prices and the increase in the goods and services tax in January.
The core price gauge closely-monitored by the MAS is expected to resume a “broadly easing trend” over the course of 2024, it said.
Gross domestic product growth in Singapore is “projected to improve gradually in the second half” of 2024 and come in closer to its potential rate for the year, the MAS report said. GDP is seen to expand at the lower half of a 0.5%-1.5% forecast range this year.
While Asian economies have posted modest price gains relative to the West, they are “more vulnerable to volatility in food and energy prices and higher imported inflation” arising from a stronger dollar, the report said.
Other key takeaways from the report:
- Accommodation inflation in Singapore is expected to ease in 2024 as the supply of completed housing units expands
- Singapore car prices are likely to rise at a moderate pace amid greater supply of car ownership certificates
- In the coming quarters, the city state’s manufacturing sector should recover given “nascent signs’ of stabilization in the global electronics industry