Singapore's central bank tightens policy in surprise move as economy grows 6.5% in third quarter

On Monday, July 6, 2020, a cyclist rides along Esplanade bridge while buildings are visible in the Central Business District of Singapore. Wei Leng Tay | Bloomberg | Getty Images
SINGAPORE - The central bank of Singapore tightened its monetary policy on Thursday, as the economy grew 6.5% compared to a year ago. In its twice-yearly monetary statement, Singapore's central bank stated that it had slightly raised the slope of the country's currency band, which is the nominal effective exchange rate for the Singapore dollar. This means that the Singapore dollar can appreciate against a range of currencies in an undisclosed band. According to the central bank, the width and level of the band are not affected.

In the next quarters, the Singapore economy will likely continue to grow at a faster pace than the trend. Monetary Authority of Singapore

MAS manages monetary policies by setting the exchange rate and not interest rates. The band is adjusted by three levers: the slope and mid-point, as well as the width. Following the move by the central bank, the Singapore dollar rose 0.2% to a high of 1.349 USD per U.S. Dollar for three weeks. Reuters polled 13 economists and found that 11 expected the Singapore central banks to maintain its policy unchanged.

MAS stated that adjustment to the currency band would ensure price stability in the medium term, while acknowledging the potential risks to economic recovery. Core inflation, which excludes accommodation and private transportation, is expected to rise between 1 and 2 percent next year. Core inflation is MAS’ preferred price indicator. "Growth in Singapore's economy will likely remain above the trend in the next quarters." The central bank stated that, barring a resurgence in the virus worldwide or a slowdown in economic reopening pace, output should return back to its potential in 2022. It added that "At the moment, external and domestic costs pressures are increasing, reflecting both normalising supply conditions as well as tight demand."

Missing estimates for growth