SINGAPORE: The Monetary Authority of Singapore (MAS) announced on 14 October that it will maintain its current monetary policy settings, as inflation shows signs of easing and economic growth continues to strengthen.
According to the central bank’s assessment, core inflation, which excludes accommodation and private transport costs, has already moderated and is expected to decline further, potentially reaching around 2 per cent by the end of 2024.
In its monetary policy statement, MAS indicated that Singapore’s economy is on track for steady expansion.
“Barring a weakening in global final demand, the economy should continue to expand at a steady pace and keep close to its potential path in 2025,” the central bank noted.
This announcement marked the sixth consecutive time MAS opted to leave its policy unchanged.
MAS stated that the current monetary policy remains consistent with its long-term goal of price stability.
Specifically, the central bank will maintain the current rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band.
No changes were made to the band’s width or the level at which it is centred.
Unlike many other countries, Singapore’s monetary policy is focused on managing the exchange rate rather than interest rates.
The MAS uses the S$NEER policy band, allowing the Singapore dollar to fluctuate against the currencies of key trading partners.
The parameters of this band, including its slope, mid-point, and width, are adjusted as necessary to maintain economic stability, although the exact band levels are not disclosed to the public.
This latest decision follows the MAS’s last tightening of monetary policy in October 2022, when it re-centred the mid-point of its exchange rate band.
MAS’s inflation forecasts reflect an improving outlook, with headline inflation expected to come in at around 2.5 per cent this year, significantly down from the 4.8 per cent recorded in 2023.
The central bank projects that inflation will ease further to between 1.5 and 2.5 per cent by 2025.
Accommodation inflation is expected to slow as leasing demand decreases, while private transport inflation is anticipated to rise due to strong demand for cars.
Core inflation, which is closely watched by MAS, is expected to average within the 1.5 to 2.5 per cent range in 2025, driven by moderate underlying cost pressures.
The central bank highlighted several factors contributing to the easing inflationary pressures, including stable imported costs, resulting from improved global oil production and favourable weather conditions for food supplies.
Domestic labour costs are expected to rise more gradually as wage growth moderates and productivity improves.
However, MAS warned that if economic growth drives higher-than-anticipated demand for labour, it could take longer for wage and service price inflation to stabilise.
According to MTI’s Advance Estimates, the Singapore economy expanded by 2.1% on a quarter-on-quarter seasonally-adjusted basis in Q3, accelerating from the average of 0.4% in the first half of the year.
On the broader economic front, Singapore’s growth momentum has exceeded expectations.
Preliminary estimates indicate that the economy expanded by 4.1 per cent year-on-year in the third quarter of 2024, following a 2.9 per cent increase in the previous quarter.
The electronics industry has been a significant driver of this growth, alongside stronger output in the modern services sector.
MAS expressed optimism about the economy’s prospects for the rest of 2024, citing the ongoing upturn in the electronics and trade cycles, as well as easing global financial conditions.
The central bank now expects GDP growth to reach the upper end of its forecast range of 2 to 3 per cent for the full year.
Nevertheless, MAS cautioned that significant uncertainties remain in the global outlook.
A sharp escalation in geopolitical tensions or trade conflicts could disrupt global and domestic investment and trade.
Additionally, there is uncertainty surrounding the pace and impact of global macroeconomic policy easing, as well as the sustainability of the recovery in the electronics sector.
