Unlike most central banks that control monetary policy with the interest rate, MAS utilizes the exchange rate as its main plan tool.
This refers to the particular S$NEER – the exchange rate of the Singapore dollar handled against a trade-weighted basket of currencies from Singapore’s main trading partners.
MAS allows the S$NEER to drift within an unspecified music group. Should it go out of this band, it steps in by buying or selling Singapore dollars.
It also adjustments the slope, width and mid-point from the band based on assessed risks to the country’s growth and inflation,
Compared to tweaks in the slope, an adjustment in the mid-point either upwards or downwards is likely to yield a faster and bigger impact on the currency, economists have said.
What the move indicates is a possible strengthening of the Singapore money, in order to reduce the impact of rising costs.
“For Singaporeans, this move can help contain imported pumpiing but not completely counteract the growing inflationary pressures, ” mentioned Ms Ling.
“All we can do is contain whenever possible as much of the price increase as possible, with a slightly stronger exchange rate, ” added Mr Song.
FURTHER TIGHTENING WITHIN OCTOBER A POSSIBILITY
The last period MAS announced it might be tightening its financial policy was in 04 when it released its half-yearly policy statement. After that, the central financial institution also said it will re-centre the mid-point of its exchange price policy band in the prevailing level of the particular S$NEER.
It also said it would “increase slightly” the rate associated with appreciation of the band to “exert a relentless dampening effect on inflation”.
Between right now and October, Mister Song said that presently there would likely be simply no off-cycle adjustments to help tighten monetary policy. However , he additional that there could be further tightening in Oct.
Concurring with this was Mr Mapa of ING, who seem to wrote: “With predictions pointing to also higher inflation designs down the road, we ponder over it likely that we might find further action by the MAS at the Oct meeting. ”
“The hurdle for further off-cycle moves came from here is very high, inch said OCBC’s Ms Ling. “However, the particular external and household growth-inflation situation remains very dynamic, and so i wouldn’t say one more tightening is totally from the table at this juncture. ”