Commentary: After 5 rounds of tightening, is there no other choice for MAS but to stay aggressive on monetary policy?


First thing to note is that unlike most central banks, MAS does not run an interest rate policy, but an exchange rate policy that helps to manage imported inflation by strengthening the trade-weighted Singapore dollar.

Second, the reality is that the world has faced both supply shocks, initially induced by the COVID-19 pandemic lockdowns but more recently due to the Russia-Ukraine war and also US-China rivalry over advanced manufacturing capabilities such as semiconductors.

So, while tightening monetary policy can dampen demand, it will not directly address supply-side constraints.

Moreover, relative central bank dynamics also matter.

While MAS was early to start tightening the S$NEER policy back in October 2021 and has done five rounds of tightening, it is also noteworthy that the US Federal Reserve has been aggressively frontloading its interest rate hikes in three back-to-back 75-basis-point hikes. In the past eight months alone, the Fed has raised rates by a total of 300 basis points, or 3 per cent.

What this means is that businesses that import intermediate inputs may benefit from a stronger Singapore dollar, which has appreciated against many regional currencies. But this is not the case against the US dollar.

For exporters, those targeting the US market will be less impacted, but those selling to regional markets may face some competitive pressures.

For Singaporeans looking to travel or studying overseas, they may also celebrate the stronger Singdollar, especially when headed to Japan, Europe or the UK.

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