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The Monetary Authority of Singapore (MAS) tightened its monetary policy on Wednesday by recentering its Singapore dollar policy band upwards and by shifting its policy to modest and gradual appreciation for the currency. -- BT PHOTO: RICHARD CHNG
THE Monetary Authority of Singapore on Wednesday tightened monetary policy by re-centring the exchange rate policy band upwards, saying it will allow a modest and gradual appreciation of the Singapore dollar.
The move comes as the Ministry of Trade and Industry raised its 2010 economic growth forecast for the second time this year and said inflation will accelerate faster than expected, prompting the central bank to join regional counterparts in tightening monetary policy.
The Singapore economy is now expected to grow by 7 to 9 per cent this year, said MTI in a statement, from an earlier revised forecast of 4.5 to 6.5 per cent.
MAS said it will undertake a one-time revaluation of the Singapore dollar and seek a gradual and modest appreciation of the currency as the Singapore economy has rebounded and inflationary pressures are likely to pick up.
MAS has maintained a zero per cent appreciation path for the S$NEER policy band since October 2008. The policy band was re-centred downwards in April last year, and kept at that level during the last policy announcement in October.
'This policy stance was assessed to be appropriate, given continuing weakness and uncertainties in global and domestic economic prospects,' said MAS on Wednesday.
'MAS will therefore re-centre the exchange rate policy band at the prevailing level of the S$NEER. Further, we will shift the policy band from that of a zero percent appreciation to one of modest and gradual appreciation.'
'There will be no change to the width of the policy band. MAS will continue to be vigilant over developments in the external environment and their impact on the domestic economy, and stands ready to curb excessive volatility in the S$NEER.'
The central bank explained that over the past six months, the S$NEER has fluctuated in the upper half of the policy band, reflecting growing optimism about the strength of the economic recovery in Asia. Meanwhile, the domestic three-month interbank rate has stabilised at a low level of 0.69 per cent since early last year, reflecting the abundant liquidity conditions globally.
On the outlook for this year, MAS said the recovery of the Singapore economy has been stronger than expected, and more entrenched since the beginning of this year. Singapore's GDP surged by 32.1 per cent in the first quarter, said the Ministry of Trade and Industry.
'The growth was broad-based, with strong performance recorded in the manufacturing and services sectors. With the Q1 expansion, the Singapore economy has now fully recovered the output lost during the recession, and economic activity in a broad range of industries has exceeded its pre-crisis peak. As a result, the economy's output gap turned positive in Q1 2010,' said MAS.
MAS expects the economy to 'continue on its firm recovery path given the more favourable global economic outlook'.
But it added: 'At the same time, inflationary pressures are likely to pick up, driven by rising global commodity prices as well as some domestic cost factors.'
THE Monetary Authority of Singapore on Wednesday tightened monetary policy by re-centring the exchange rate policy band upwards, saying it will allow a modest and gradual appreciation of the Singapore dollar.
The move comes as the Ministry of Trade and Industry raised its 2010 economic growth forecast for the second time this year and said inflation will accelerate faster than expected, prompting the central bank to join regional counterparts in tightening monetary policy.
The Singapore economy is now expected to grow by 7 to 9 per cent this year, said MTI in a statement, from an earlier revised forecast of 4.5 to 6.5 per cent.
MAS said it will undertake a one-time revaluation of the Singapore dollar and seek a gradual and modest appreciation of the currency as the Singapore economy has rebounded and inflationary pressures are likely to pick up.
MAS has maintained a zero per cent appreciation path for the S$NEER policy band since October 2008. The policy band was re-centred downwards in April last year, and kept at that level during the last policy announcement in October.
'This policy stance was assessed to be appropriate, given continuing weakness and uncertainties in global and domestic economic prospects,' said MAS on Wednesday.
'MAS will therefore re-centre the exchange rate policy band at the prevailing level of the S$NEER. Further, we will shift the policy band from that of a zero percent appreciation to one of modest and gradual appreciation.'
'There will be no change to the width of the policy band. MAS will continue to be vigilant over developments in the external environment and their impact on the domestic economy, and stands ready to curb excessive volatility in the S$NEER.'
The central bank explained that over the past six months, the S$NEER has fluctuated in the upper half of the policy band, reflecting growing optimism about the strength of the economic recovery in Asia. Meanwhile, the domestic three-month interbank rate has stabilised at a low level of 0.69 per cent since early last year, reflecting the abundant liquidity conditions globally.
On the outlook for this year, MAS said the recovery of the Singapore economy has been stronger than expected, and more entrenched since the beginning of this year. Singapore's GDP surged by 32.1 per cent in the first quarter, said the Ministry of Trade and Industry.
'The growth was broad-based, with strong performance recorded in the manufacturing and services sectors. With the Q1 expansion, the Singapore economy has now fully recovered the output lost during the recession, and economic activity in a broad range of industries has exceeded its pre-crisis peak. As a result, the economy's output gap turned positive in Q1 2010,' said MAS.
MAS expects the economy to 'continue on its firm recovery path given the more favourable global economic outlook'.
But it added: 'At the same time, inflationary pressures are likely to pick up, driven by rising global commodity prices as well as some domestic cost factors.'
