The Monetary Authority of Singapore has announced at its scheduled semi-annual meeting today that it will retain current monetary policy settings. The MAS pursues its inflation and growth objectives by adjusting the direction, slope, width, and central level of an undisclosed"band" around its measure of Singapore's nominal effective exchange rate. Officials today left those parameters unchanged in order to target the prevailing rate of appreciation in the exchange rate.

Both headline and core inflation have moderated since the last policy meeting in April, suggesting that the exchange rate appreciation targeted with existing policy settings has helped to restrain price pressures. Officials expect headline inflation to pick up slightly in coming months in response to higher transport costs. However, they expect the downward trend in core inflation to continue, forecasting it to average between 2.5 percent and 3.5 percent on an annual basis this year.

GDP data also published today show growth in Singapore's economy picked up in the three months to September, driven by a small rebound in the manufacturing sector. Officials now judge that the outlook for domestic growth remains"muted" in the near-term but should improve gradually over 2024.

This assessment that core inflation is likely to moderate and growth improve only gradually has persuaded officials that they should continue to target exchange rate appreciation but at the same pace as they have been targeting over the last twelve months. They argue that"sustained appreciation" is necessary to ensure medium-term price stability.

Officials also announced today that they will be increasing the frequency of policy meetings from semi-annually to quarterly. Starting in 2024, meetings will be held in January, April, July and October of each year.

The Monetary Authority of Singapore conducts monetary policy by managing a trade-weighted nominal effective exchange rate, reflecting Singapore's status as a small and open economy highly dependent on global trade and capital flows. This exchange rate is allowed to fluctuate within a policy band, with officials adjusting the slope, width, and central level of the policy band in order to maintain price stability. Although the MAS does not have an explicit inflation target, MAS officials consider that keeping core inflation just under 2.0 percent is consistent with overall price stability in the economy.

Officials review policy every six months in April and October but are also prepared to make adjustments at other times as required. Adjustments that strengthen the exchange rate are equivalent to a tightening of monetary policy, while adjustments that weaken the exchange rate are equivalent to a loosening of monetary policy.

The exchange rate affects the economy in a significant way, particularly for a small and open economy like Singapore. A stronger exchange rate tends to slow economic activity by making exports more expensive to foreigners, while a weaker exchange rate tends to stimulate economic activity by making exports less expensive to foreigners. The exchange rate also has a direct and indirect effect on prices in the domestic economy, with a stronger exchange rate tending to restrain inflation and a weaker exchange rate tending to push up inflation.