Singapore steps up inflation fight with surprise central bank tightening

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SINGAPORE — Singapore’s central bank tightened its monetary policy on Thursday, in an off-cycle move, saying the action would slow inflation as the city-state joins other countries ramping up their battle against mounting price pressures.

The Singapore currency jumped broadly after the news and was last up almost 0.7% to S$1.3963 per dollar.

The tightening by Singapore was the fourth in the past nine months, with central banks from New Zealand to Canada recently hiking interest rates to restrain soaring consumer prices.

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“Clearly, MAS is very concerned about inflation. It is just going to try to do all they can to put the brakes on inflation,” said Chua Hak Bin, an economist at Maybank.

The Monetary Authority of Singapore (MAS) said it would re-center the mid-point of the exchange rate policy band known as the Nominal Effective Exchange Rate, or S$NEER. There will be no change to the slope and width of the band, it said.

“This policy move, building on previous tightening moves, should help slow the momentum of inflation and ensure medium-term price stability,” the MAS said in a statement.

The U.S. Federal Reserve is seen stepping up its monetary tightening campaign with a supersized 100 basis point rate hike this month after a grim inflation report showed inflation racing at four-decade highs.

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In April, Singapore’s central bank tightened its monetary policy to slow inflation momentum against soaring prices made worse by the Ukraine war and global supply snags.

The central bank usually holds two scheduled monetary policy meetings a year, in April and October.

The latest move is the second out-of-cycle change this year, after an unscheduled tightening in January and leaves the door open to further rate increases, economists say.

“It’s telling you that we are worried about inflation and therefore we welcome a strong currency,” said Moh Siong Sim, a strategist at Bank of Singapore.

“It probably wasn’t fully expected in terms of the timing and extent of the move. It leaves open the question of how much tightening is left to come?”

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The MAS manages monetary policy through exchange rate settings, rather than interest rates, because trade flows dwarf its economy.

It adjusts its policy via three levers: the slope, mid-point and width of the policy band, which let the Singapore dollar rise or fall against the currencies of its main trading partners within an undisclosed band.

The policy change came after the central bank said Singapore’s gross domestic product growth rate is expected to come in at the lower half of the 3-5% forecast range for 2022, while core inflation is now projected between 3.0–4.0% for the year, up from an earlier forecast of 2.5–3.5%. (Reporting by Anshuman Daga; Additional reporting by Chen Lin, Rae Wee and Tom Westbrook; Editing by Ed Davies and Sam Holmes)