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Singapore Upholds Stringent Monetary Policy During Peak Inflation Period

Written by: Aayudh Sen



Singapore has been navigating through challenging economic waters, marked by a peak inflation rate of 7.5 percent in 2022. Despite this, the city-state has demonstrated a commitment to maintaining economic stability through a tight monetary policy.


Dr. Kevin Cheng, Lead Economist at AMRO, commended Singapore's approach, noting the effectiveness of the relatively tight monetary policy in managing the elevated inflation of the past two years. He highlighted the appreciation of the Singapore dollar nominal effective exchange rate as a crucial factor in this strategy. With inflation expected to persist at elevated levels in the near term, maintaining the current monetary policy stance is seen as essential for ensuring continued price stability.


Singapore's economy has long been lauded for its resilience and adaptability in the face of challenges. Dr. Cheng emphasized the existence of contingency plans and criteria for adjusting economic strategies swiftly. Should inflation exceed expectations, Singaporean authorities possess a range of policy instruments at their disposal, from adjusting exchange rate bands to implementing non-monetary measures impacting prices. Additionally, Singapore is well-prepared to manage sudden capital outflows, backed by substantial foreign reserves and the robust capitalization of its banks.


The government's approach involves a delicate balance between tight monetary policy and fiscal interventions. Fiscal policy, primarily targeted at maintaining price stability, can complement monetary measures through instruments such as cash payouts and wage subsidies, ensuring stable economic growth while safeguarding vulnerable segments of the population from the impact of economic shocks.


Regarding Singapore's position as an International Financial Centre (IFC), Dr. Cheng sees the city-state as a complementary rather than a direct competitor to Hong Kong. He pointed out Singapore's rapid expansion in the financial sector, particularly in wealth management. However, he also acknowledged the capacity constraints faced by Singapore, such as rising property prices and rents. Despite these challenges, Dr. Cheng emphasized the potential for collaboration between Singapore and Hong Kong, envisioning a scenario where both cities work hand in hand to enhance Asia's economic landscape, leveraging their respective strengths and regional focuses.


In conclusion, Singapore's commitment to a tight monetary policy amidst inflationary pressures underscores its dedication to economic stability. With a robust set of policy tools and a proactive approach to economic management, Singapore is poised to navigate through uncertain times while continuing to play a significant role in the global financial landscape.


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