Singapore’s monetary authorities said they would use two of their three instruments to tighten policy on Thursday to fight rising prices, which have emerged despite weak economic growth.
The city-state, which uses exchange rates rather than borrowing costs to control inflation, said it would raise the midpoint and increase the slope of the effective exchange rate range 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 happened when the Singapore Monetary Authorities raised their inflation forecast and made a sad note about the prospects for global growth in the face of the war in Ukraine.
Core inflation in Singapore rose to 2.3% year on year in January-February, from 1.7% in the last quarter of 2021, driven by rising energy and food prices. Gross domestic product, also announced on Thursday, rose 3.4 percent, slightly missing economists’ forecasts.
In light of global price pressures and labor market tightening, the MAS raised its core inflation forecast by 0.5 percentage points and raised its inflation forecast for all positions by 2 percentage points.
Priyanka Kishor, head of India’s and Southeast Asia’s economy at Oxford Economics, predicts a further tightening of the slope by 5 basis points this year, likely before October, if global inflationary pressures continue.
“We expect growth to slow again in the second quarter. At 3.3% in 2022 and 2.3% in 2023, our growth forecast is below the consensus and we expect the output gap to become positive only at the end of 2023, “Kishor said in a statement.
“However, the risks to the growth prospects have shifted further downwards amid heightened geopolitical uncertainty, rising inflation and risks of a downturn for China due to its continued approach with zero Covid.
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