Singapore's Central Bank Defies Global Easing Trend – Currency Band Remains Unchanged

In a clear sign of independence from global developments, the Central Bank of Singapore, the Monetary Authority of Singapore (MAS), is maintaining its current monetary policy stance. It primarily uses the exchange rate as a tool to ensure price stability in the medium term and has decided at its latest meeting to keep the slope, width, and center of the currency band unchanged. This decision will help to keep the local dollar on an appreciation path and thereby dampen imported price increases. According to MAS, the inflation risks in Singapore have appeared more balanced compared to three months ago. Although the core inflation outlook for 2025 remains at 2%, there are now concerns regarding the growth of labor costs per unit, as noted by Selena Ling, Chief Economist at Oversea-Chinese Banking Corp. The Singaporean currency responded promptly to this announcement, gaining ground against the US dollar. This decision contrasts with recent interest rate cuts in other developed countries, including the US and New Zealand, which have each reduced their key rates by 50 basis points. While global inflation is cooling, the effects are not yet fully felt in Singapore, as the country imports many basic goods. Despite the decline in consumer prices in 2024, they remain high, and the MAS's preferred core inflation rate, which includes food and fuel prices, unexpectedly rose to 2.7% in August. Without an explicit inflation target, the MAS remains steadfast in its view that a sub-2% rate is consistent with price stability. The exchange rate regime, which has been stable for a year, is managed by the MAS through adjustments to the parameters for the nominal effective exchange rate of the Singaporean currency. These respond to various international developments, including oil price trends and the US presidential elections, which can affect Singapore's growth and the performance of its currency.