Singapore’s central bank delivered a surprise tightening on Monday, opting for a second consecutive move to curb the risk that higher oil prices could feed inflation. The Monetary Authority of Singapore said it would slightly increase the pace of appreciation of the Singapore dollar’s nominal effective exchange rate policy band, a smaller step than the one taken in April. The width of the band and its midpoint were left unchanged.
The decision ran against expectations. Economists surveyed by Reuters had expected the MAS to leave policy unchanged. Unlike most central banks, Singapore manages policy through the exchange rate rather than interest rates, using the currency against a basket of trading partners within an undisclosed band. In its statement, the MAS said the calibrated adjustment reflected continued uncertainty and built on the earlier tightening.
Inflation remains contained, but import costs are a concern
Price pressures in Singapore are still relatively modest, though they edged higher in June. Core inflation, which strips out accommodation and transportation, rose to 1.6% from 1.4% in May, close to the lower end of the MAS’s 1.5% to 2.5% forecast range for this year. Headline inflation came in at 1.9%. According to BMI, a FitchSolutions company, softer services prices in areas such as healthcare, communications and education offset much of the rise in transport fuel costs. Even so, BMI said imported-cost pressures tend to reach consumers with a lag, suggesting inflation could climb in the months ahead.
Singapore’s heavy dependence on imported energy leaves it especially exposed when oil prices rise. Brent crude moved back above $100 a barrel last week after attacks on two Saudi tankers in the Red Sea added to supply concerns. At the same time, the economy has remained firm. Gross domestic product expanded 5.7% in the second quarter from a year earlier, above the Reuters median estimate of 5.5% and well ahead of the government’s full-year forecast of 2% to 4%. The strength has been supported by demand for AI-related electronics exports, helping the economy absorb the recent market turbulence.
Source: cnbc.com
