Singapore surprises with tighter policy to fight inflation

SINGAPORE’S central bank unexpectedly tightened monetary policy on Thursday, in its second surprise move this year, as it seeks to cool inflation that’s expected to quicken more than previously anticipated.

The Monetary Authority of Singapore, which uses foreign exchange as its main policy tool, signaled in a statement that it will re-center the midpoint of the policy band up to its prevailing level allowing the local currency to appreciate further against peers, a move aimed at countering imported cost pressures.

Singapore’s currency rose as much as 0.7% against the dollar, the biggest intraday gain since May. It traded at 1.3959 per dollar as at 8.12 a.m. local time.

“There will be no change to the slope and width of the band,” The MAS said in the statement. “This policy move, building on previous tightening moves, should help slow the momentum of inflation and ensure medium-term price stability.”

The policy decision, announced shortly after data showed economic activity flatlined in the second quarter compared to the previous three months, follows the monetary authority’s preferred core inflation gauge rising to the highest since December 2008. That was driven by gains across food, services, retail goods and energy.

The central bank on Thursday bumped its inflation forecasts, seeing the key core measure it tracks to rise between 3%-4% this year from 2.5%-3.5% seen previously. It expects the all-items measure to surge between 5%-6% from the earlier forecast range of 4.5%-5.5%.

Singapore officials have been warning that the import- and trade-reliant city-state could be susceptible to price shocks as the war in Ukraine threatens commodities markets and China’s sustained Covid-related lockdowns snarl supply chains.

The MAS’s core consumer price index — which excludes private transport and accommodation costs — rose to 3.6% last month, with the central bank on Thursday cautioning it expects the pace to stay elevated in the months ahead.

The MAS took steps toward tightening at its scheduled meetings in October and April, as well as a surprise move in January as higher-than-expected consumer prices forced authorities to scrap their forecasts.

The next scheduled MAS monetary policy decision is in October. — Bloomberg