SINGAPORE: Official data released this week showed Singapore’s key consumer price index rose at its fastest pace in more than 13 years across a broad set of categories, including services, food, retail and utilities.
Reports continue of increasing pressure on the country’s central bank to again tighten monetary policy, which could occur later in the year if the trend continues.
In June, the core inflation rate, the central bank’s favored price measure, rose to 4.4 percent year-on-year, compared to the 4.2 percent forecasted by economists polled by Reuters, while headline inflation rose to 6.7 percent, compared with economists’ forecast of 6.2 percent.
“Our base case remains for the Monetary Authority of Singapore to tighten its FX policy settings again in October,” said Brian Tan, senior regional economist at Barclays, as reported by Reuters.
The Monetary Authority of Singapore manages the country’s monetary policy through exchange rate settings, rather than interest rates, as trade flows dwarf its economy.
Tan predicts a 50 basis point increase in October to around 2.0 percent, noting the considerable risk of another upward re-centring as “core inflation is likely to surprise the central bank to the upside again,” he said, as quoted by Reuters.
In a surprise move on 14th July, Singapore’s central bank tightened its monetary policy, the fourth such move over the past nine months. Every year, the central bank publishes two scheduled monetary policy statements, in April and October.
However, Maybank expects the Monetary Authority of Singapore to hold its base case policy in October after the tightening in July.
“So unless inflation continues to surprise on the upside, like if inflation data in the fourth quarter continues to be close to 5 percent, they may have to tighten another round,” added Lee Ju Ye, economist at Maybank, according to Reuters.
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