Singapore’s monetary authority said it would use two of its three policy-tightening tools on Thursday, in a bid to tackle the price spike that has occurred despite lackluster economic growth.
The city-state, which uses exchange rates rather than interest rates to control inflation, said it would both raise the midpoint and steepen the slope of the effective exchange rate band for the Singapore dollar.
While economists expected Singapore to tighten its stance, adjusting both the slope and the midpoint was an unexpectedly aggressive move. This came as the Monetary Authority of Singapore raised its inflation forecast and issued a pessimistic note on global growth prospects in the face of war in Ukraine.
Core inflation in Singapore rose to 2.3% year-on-year between January and February, from 1.7% in the last quarter of 2021, driven by higher energy and food prices. The country’s gross domestic product, also announced on Thursday, rose 3.4%, slightly beating economists’ forecasts.
In light of global price pressures and a tightening labor market, the MAS raised its core inflation forecast by 0.5 percentage points and raised its headline inflation forecast by 2 percentage points. percentage.
Priyanka Kishore, head of India and Southeast Asia economics at Oxford Economics, has predicted a further 5 basis point slope tightening this year, possibly before October if inflationary pressures persist.
“We expect growth to slow again sequentially in the second quarter. At 3.3% in 2022 and 2.3% in 2023, our growth forecast is below consensus and we expect the output gap to not will only become positive at the end of 2023,” Kishore said in a statement.
“Yet, risks to the growth outlook have shifted more to the downside amid heightened geopolitical uncertainties, rising inflation and downside risks for China due to its continued approach to zero Covid. “