Singapore’s central bank, the Monetary Authority of Singapore (MAS), announced on Monday that it would leave its monetary policy unchanged in its first quarterly decision of 2024, in line with market expectations.
The MAS stated that it would also uphold its exchange rate policy band, known as the Singapore dollar nominal effective exchange rate (S$NEER).
In a policy statement, the central bank asserted its commitment to closely monitoring both global and domestic economic developments, while remaining vigilant to risks posed to inflation and growth.
Unlike other central banks that adjust domestic lending rates, MAS employs a unique approach by tweaking the exchange rates of its currency. By strengthening or weakening its currency against those of its main trading partners, MAS effectively sets the S$NEER. However, the precise exchange rate is not fixed; instead, the S$NEER is allowed to fluctuate within a predetermined policy band, the specific levels of which are not disclosed.
Starting this year, MAS transitioned from conducting biannual reviews of its monetary policy to issuing quarterly policy statements. These statements are scheduled for release in January, April, July, and October.
The MAS also expressed optimism regarding the country’s gross domestic product (GDP) in 2024, forecasting growth to range between 1% and 3%. Preliminary data from early January indicated that Singapore’s economy expanded by 1.2% last year, with fourth-quarter growth reaching 2.8% year-on-year, its fastest pace for the year.
The central bank anticipates a strengthening of the Singapore economy in 2024, with growth becoming more broad-based. MAS Core Inflation is expected to remain elevated in the earlier part of the year due, in part, to the one-off impact of the 1%-point increase in the goods and services tax (GST) implemented in January. Core inflation is projected to average between 2.5% and 3.5% in 2024, unchanged from the October forecast. Excluding the impact of the GST hike, core inflation is forecasted to average between 1.5% and 2.5%.
Looking ahead, economists will closely monitor MAS decisions for indications of when the central bank might begin to ease its monetary policy. While MAS ended its policy tightening cycle in April after five consecutive rate hikes, economists are particularly attentive to signs of easing amidst ongoing inflation concerns.
With the U.S. Federal Reserve projecting at least three interest rate cuts for 2024, MAS decisions are closely watched for insights into potential policy adjustments. Economists believe that MAS could begin easing as early as April, although risks such as core inflation could delay this until later in the year.
Singapore is set to announce its budget for 2024 on February 16, with economists eager to gauge any shifts in government priorities. While near-term support measures have been rolled out to address rising living costs and inflation, analysts expect the new budget to focus on longer-term priorities such as upskilling the labor force and promoting innovation.
