Singapore Defies Global Trend: Monetary Policy Remains Stable

Singapore remains an outlier in the global context of monetary easing, while other countries are cutting interest rates. The city-state leverages the strength of its currency to counteract still high living costs. In an intensive economic environment, it is important for the Monetary Authority of Singapore (MAS) to maintain the current parameters of the currency band. This decision is made even as consumer prices cool only slowly. Almost all economists in a Bloomberg survey expect the MAS to make no changes on Monday. A minority, including United Overseas Bank, however, expect an early shift towards easing. In contrast, central banks in the U.S., Europe, and parts of Asia have started lowering interest rates as inflation retreats from pandemic peaks. In Singapore, where most of its basic goods are imported, the decline in consumer prices has slowed. The MAS controls the inflation rate through the exchange rate, not through interest rates. "There are currently no conditions for monetary easing," says Khoon Goh, head of research at ANZ Group, predicting an easing by the MAS no earlier than 2025. Alongside Singapore, New Zealand, India, and South Korea are soon making monetary policy decisions. While New Zealand accelerated easing and India is eyeing its first rate cut in four years, South Korea is also expected to reduce rates. The stability of Singapore's nominal effective exchange rate parameters for the past year underscores the MAS's strategic restraint. Factors such as oil prices, U.S. elections, and the interest rate cuts by central banks in Frankfurt, Beijing, and Washington also influence Singapore's economic development. The Federal Reserve's rate cuts in September led to a surge of the Singapore dollar against the U.S. dollar. A continued appreciation of the S$NEER would be beneficial for the Singapore dollar, according to Malayan Banking. Prime Minister Lawrence Wong emphasized in a video message on October 2 that he expects further decline in inflation, supported by measures to reduce living costs for low-income groups. However, the rise in core inflation to 2.7% in August indicates that cost pressure remains high. According to Bloomberg Economics, the declaration of high core inflation remains burdensome for many households in the city. Wong expressed the expectation that inflation would return to pre-pandemic levels. Data on the stabilization or growth increase of the Singaporean economy in the third quarter are expected alongside the monetary policy decision. Economists from Goldman Sachs forecast a growth of 2%-3% for this year. According to Kai Wei Ang from the Bank of America, the MAS is pursuing a "wait-and-see" strategy, especially with regard to the U.S. elections.