Commentary: After 5 rounds of tightening, is there no different alternative for MAS however to remain aggressive on financial coverage?

CENTRAL BANK DYNAMICS

Very first thing to notice is that in contrast to most central banks, MAS doesn’t run an rate of interest coverage, however an exchange rate policy that helps to manage imported inflation by strengthening the trade-weighted Singapore greenback.

Second, the truth is that the world has confronted each provide shocks, initially induced by the COVID-19 pandemic lockdowns however extra not too long ago as a result of Russia-Ukraine war and likewise US-China rivalry over superior manufacturing capabilities akin to semiconductors.

So, whereas tightening financial coverage can dampen demand, it is not going to immediately deal with supply-side constraints.

Furthermore, relative central financial institution dynamics additionally matter.

Whereas MAS was early to start out tightening the S$NEER coverage again in October 2021 and has completed 5 rounds of tightening, it is usually noteworthy that the US Federal Reserve has been aggressively frontloading its rate of interest hikes in three back-to-back 75-basis-point hikes. Previously eight months alone, the Fed has raised charges by a complete of 300 foundation factors, or 3 per cent.

What this implies is that companies that import intermediate inputs might profit from a stronger Singapore greenback, which has appreciated towards many regional currencies. However this isn’t the case towards the US greenback.

For exporters, these focusing on the US market will likely be much less impacted, however these promoting to regional markets might face some aggressive pressures.

For Singaporeans trying to journey or learning abroad, they could additionally have a good time the stronger Singdollar, particularly when headed to Japan, Europe or the UK.