SINGAPORE – The move by the central bank to tighten monetary policy is a “macro” decision that will have practical effects on the price of goods for a typical Singaporean.
A tight policy means a country reduces the so-called money supply, said Professor Lawrence Loh of the National University of Singapore Business School, noting: “This is usually done to cool the economy, which is, or is expected to be, growing too fast.
“A tight policy can bring down prices; in other words, control inflation.”
Thursday’s (Oct 14) MAS announcement means that the Singdollar will strengthen relative to the currencies of other countries, which may reduce the price of imports.
This also suggests that travellers from here might enjoy more favourable exchange rates when they head overseas, said CIMB Private Banking economist Song Seng Wun.
This change in monetary policy is especially important as prices are rising with no let-up in sight.
Mr Song noted that material costs have gone up, which means common items such as laptops, tablets and even washing machines can become more expensive. A tighter monetary policy helps to offset some of these rising costs for local consumers.
OCBC chief economist Selena Ling said the MAS move was spurred by broader and persistent price pressures, including supply chain problems, costlier energy, foreign manpower shortages and even the expansion of the Progressive Wage Model to more sectors and occupations.
Singapore’s core inflation rose to more than a two-year high in August amid higher food prices. Core inflation, which excludes accommodation and private road transport costs, rose to 1.1 per cent on a year-on-year basis, partly due to the low base effect from last year.
MAS said: “In the quarters ahead, rising imported and labour costs, alongside the recovery in domestic activity, will support a broad-based pick-up in inflation. Imported inflationary pressures are likely to persist for some time amid strengthening global demand and lingering supply constraints.” It added that wage growth here is likely to be firm.
“The accumulating business costs will pass through to consumer price inflation as the domestic economy reopens and private consumption recovers,” it said.
“Various service fee increases that were put on hold since the pandemic began, such as for transport, healthcare and education, could also resume.”
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