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Singapore Central Bank Surprises With Policy Tightening — Update

   By Ronnie Harui and P.R. Venkat 
 

Singapore's central bank unexpectedly tightened its currency policy to cushion against inflationary pressures arising from strengthening global demand amid a global supply-chain crunch.

The Monetary Authority of Singapore said Thursday that it will "slightly" increase the slope of the Singapore dollar nominal effective exchange rate policy band from the current slope of zero.

Twelve of the 14 economists polled by The Wall Street Journal had expected the central bank to leave its policy unchanged at its semiannual review.

Singapore becomes the latest major economy in the Asia-Pacific region to tighten monetary policy after South Korea and New Zealand. Central banks world-wide are concerned about inflationary pressures spilling into their respective economies due to the rising cost of raw materials, labor and energy.

Unlike most central banks, the Monetary Authority of Singapore uses currency as a policy tool to damp inflationary expectations and support growth as trade flows dwarf the island nation's domestic activity.

To do this, the Singapore dollar operates under a managed float-currency regime based on a basket of currencies representing the city-state's major trade partners. The rate is allowed to trade within an undisclosed band.

"MAS effectively wanted to send a signal that it is leaning towards the hawkish side ahead of the start of Fed tapering this year," CommerzBank said, calling the central bank's decision surprising.

The MAS said the width of the policy band and the level at which it is centered will be unchanged.

The U.S. dollar is down 0.3% against the Singapore dollar on the day at 1.3478, a three-week low. In coming quarters, MAS said inflationary pressures are likely to persist, with companies passing on business costs as the domestic economy reopens and private consumption recovers.

Various service-fee increases, such as transport, healthcare and education, that were put on hold since the start of Covid-19 could resume, the central bank said.

The MAS said the domestic economy is likely to remain above trend. The latest data from the Ministry of Trade and Industry showed that gross domestic product grew 6.5% on year in the third quarter. In the second quarter of this year, the economy grew 15.2%.

 

Write to P.R. Venkat at venkat.pr@wsj.com

 

Corrections & Amplifications

This item was corrected at 0242 GMT to reflect the U.S. dollar is down 0.3% against the Singapore dollar on the day at 1.3478. The original version incorrectly preceded the rate with a dollar symbol in the ninth paragraph.

(END) Dow Jones Newswires

October 13, 2021 22:27 ET (02:27 GMT)

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