Singapore's Central Bank Chief Discusses Inflation Trends and Policy Approach

30 Oct, 2023

Singapore's Central Bank Chief Discusses Inflation Trends and Policy Approach

However, the battle against heightened price pressures, driven by a combination of global factors like supply chain disruptions and an energy crisis, is far from over. Mr. Menon emphasized that "We are not declaring victory yet." He further pointed out that achieving a 3 percent inflation rate is insufficient, considering that core inflation has historically averaged around 2 percent.

Additionally, Mr. Menon highlighted the forthcoming one-percentage point increase in the Goods and Services Tax (GST) scheduled for January. This GST hike is expected to have an immediate impact on inflation.

MAS has forecasted a core inflation rate of 2.5 to 3.5 percent for 2024, factoring in the GST increase. Without this adjustment, core inflation is projected to be one percentage point lower at 1.5 to 2.5 percent. Mr. Menon emphasized, "Core inflation is in a much better place than in the last two years, but we're not home yet. So, I think it would be premature to talk about relaxation or easing in monetary policy."

To combat inflation, MAS raised interest rates five times in a span of 12 months, including two off-cycle moves in January and July 2022. However, in the current year, the central bank has chosen to maintain its monetary policy stance.

Mr. Menon emphasized that MAS' decision to refrain from further policy tightening aligns with the approach of other central banks. He noted, "It's too early to ease because once you ease and if inflation surges up again, you've got to redo all that hard work." He added that central banks are rightly adopting a cautious approach and opting to wait.

Mr. Menon also acknowledged that global central banks have been fortunate because the rapid interest rate hikes aimed at curbing inflation have not led to an excessively high cost in terms of economic growth. While growth has slowed down, it has not plummeted as severely as some anticipated. The cautious approach adopted by central banks is in recognition of the need to balance inflation control with economic stability.