Singapore’s central bank said a resurgence in global food and oil prices could increase pressure on monetary authorities globally to further tighten their policies.
“There are nascent supply-side sources of fresh price pressures” as oil skirts close to US$100 a barrel, the Monetary Authority of Singapore (MAS) said in its biannual macroeconomic review published yesterday.
There “remains a risk that adverse supply side shocks from extreme weather events, including a strong El Nino, and an escalation in geopolitical tensions, could lead to a surge in food and energy prices,” it said. “Upside inflation surprises could prompt further policy tightening or keep rates elevated for longer.”
Photo: Reuters
Indonesia and the Philippines delivered surprise interest rate hikes in the past few weeks, and signaled that they could do more to support their currencies and stem price risks. Other Asian central banks are expected to raise interest rates over the next six months, with a stronger US dollar and rising oil prices keeping countries from Australia to South Korea on a tightening path.
As for Singapore, which uses the exchange rate as its main policy tool and had kept settings unchanged earlier this month, MAS Managing Director Ravi Menon said the monetary policy “remains appropriately tight.”
The MAS would “maintain the prevailing rate of appreciation of the S$NEER policy band,” the central bank said in the report, recapping its Oct. 13 decision to keep the Singapore dollar’s nominal effective exchange rate on an appreciating path.
“There will be no change to its width and the level at which it is centered,” the report said.
The MAS, which tightened monetary policy five times in the past two years, is to announce its next decision in late January next year.
Traders see an average of 13 basis-point hikes in the Asia-Pacific region, excluding China, over the next six months, according to market implied policy rates.
While Asian economies have posted modest price gains relative to the West, they are “more vulnerable to volatility in food and energy prices and higher imported inflation” arising from a stronger dollar, MAS said in the report.
“Further moves yet by the US Federal Reserve, or another spike in market rates, could tip others into tightening again, too, from Korea to India,” HSBC Holdings PLC chief Asia economist Frederic Neumann said on Friday.
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