By P.R. Venkat

Singapore’s central bank unexpectedly tightened monetary policy on Tuesday as a preemptive measure to stem the inflationary impact of supply-side constraints and rising commodity prices.

In an announcement ahead of its scheduled policy meeting in April, the Monetary Authority of Singapore said it would slightly increase the rate of appreciation of the Singapore dollar against a basket of currencies.

This is the second tightening move made by the bank in two months. Previously, it slightly increased the slope of its nominal effective exchange rate policy band for the Singapore dollar from the zero slope at the time.

Unlike most central banks, the MAS uses the currency as a policy tool to dampen inflationary expectations and support growth as trade flows overshadow the island nation’s domestic activity.

To achieve this, the Singapore dollar operates under a managed float regime based on a basket of currencies representing the city-state’s major trading partners. The rate is allowed to trade in an undisclosed band.

The central bank said Tuesday that the width of the policy range and the level at which it is centered are unchanged.

He said that since October, the country’s inflation outlook has risen further, reflecting both global and domestic factors.

“The MAS therefore considered it appropriate to make a further precautionary adjustment to its monetary policy stance at this stage,” the central bank said.

The central bank now forecasts core inflation of 2.0% to 3.0% for 2022, down from 1.0% to 2.0% estimated in October.

Write to PR Venkat at [email protected]