Singapore Warns of Global Tightening Risk on Inflation Surprise


Singapore’s central bank chief has warned of the risk of global monetary tightening amid rising inflation pressures, as the city-state reported a higher-than-expected inflation rate for September.

Singapore’s annual inflation rate edged up to 4.1% in September, from 4.0% in August, matching market consensus. This was the highest inflation rate since February 2023, when it reached 4.2%. The increase was mainly driven by higher transport and healthcare costs, while food and housing inflation eased slightly.

The core inflation rate, which excludes accommodation and private transport costs, fell to 3.0% in September, from 3.4% in August, pointing to the lowest print in 18 months. The decline was due to lower inflation for food, and retail and other goods.

Singapore Warns of Global Tightening Risk on Inflation Surprise
Singapore Warns of Global Tightening Risk on Inflation Surprise

MAS chief cautions against premature tightening

In an interview with Bloomberg Television on Monday, Ravi Menon, the outgoing managing director of the Monetary Authority of Singapore (MAS), said that the global inflation outlook was “uncertain” and that central banks should be “careful” not to tighten monetary policy too soon.

He said that while some inflation pressures were transitory, such as supply chain disruptions and commodity price spikes, others were more persistent, such as wage pressures and housing costs.

He added that the MAS was “not declaring victory yet” on inflation, as it expected core inflation to rise again in early 2024 due to the planned increase in the goods and services tax (GST) rate by one percentage point.

He also said that the MAS was “watching very closely” the developments in China, where the debt crisis of property giant Evergrande has rattled financial markets and raised concerns about a slowdown in the world’s second-largest economy.

MAS maintains policy stance in October

The MAS, which uses the exchange rate as its main policy tool, announced on Oct 13 that it would keep its policy stance unchanged for the third consecutive meeting. This means that it would maintain a zero percent per annum rate of appreciation of the policy band for the Singapore dollar nominal effective exchange rate (S$NEER).

The MAS said that this stance was “appropriate” given the “uneven” recovery of the Singapore economy amid the COVID-19 pandemic and the “subdued” outlook for core inflation.

The MAS also revised its growth forecast for 2023 to 5.5% to 6.5%, from 6.0% to 7.0% previously, citing the impact of tighter border controls and social distancing measures on some sectors. However, it also said that growth would pick up pace in 2024 as vaccination rates improve and global demand recovers.


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