Singapore seen tightening monetary policy this month amid rising inflation

A view of the Monetary Authority of Singapore's headquarters in Singapore.

SINGAPORE Reuters -- Singapore is likely to tighten monetary policy this month, the fifth time in a row, amid rising inflation in the Asian financial hub due to global supply chain disruptions and tight labour market.

The Monetary Authority of Singapore MAS is tightening its policy, according to 16 economists polled by Reuters, but they are divided on how aggressive the central bank will be and which of its various settings it will change.

Instead of interest rates, the MAS manages policy by letting the local dollar rise or fall against the currencies of its main trading partners within an unidentified band, known as the Singapore dollar Nominal Effective Exchange Rate, or S NEER.

It adjusts its policy via three levers: the slope, mid-point and width of the policy band.

Economists are divided on whether MAS will tighten one or two of its three settings.

The weak outlook was cited by those who were betting on only one lever.

Four analysts said the MAS would lift the mid-point, with no change to the width or slope, while another five expect the MAS to steepen the slope only.

The mid-point is often seen as a more aggressive tool than adjusting the slope, while the width is usually used to limit Singapore dollar volatility.

The recent reversal of the midpoint helps deal with short-term macro pressure more quickly, while the steepening of the S NEER slope has historically been associated with a more optimistic outlook, said Morgan Stanley analysts in a report.

Singapore is most exposed to a global demand slowdown due to Singapore's small, open economy and high export orientation. They said the balance of concern is likely to shift from upside risks to inflation to downside risks to growth as we head into 2023.

The remaining seven analysts expect MAS to steepen the slope and upwardly recentre the mid-point.

In October, MAS faces a worse growth-inflation tradeoff than when it delivered an upward recentering of the S NEER policy band in an off-cycle move in July, according to Bank of America Securities economist Mohamed Faiz Nagutha.

The central bank is expected to release its next monetary policy statement no later than October 14.

The MAS has tightened monetary policy four times in a row, with the latest in July being an out-of- cycle move.

Consumer inflation hit a near 14-year high in August due to larger increases in the prices of services and food, while headline prices beat analysts' forecast.

The MAS believes core inflation will be between 3% and 4% this year, while headline inflation is expected to be between 5% and 6%. Analysts expect the MAS to revise its inflation forecast at the October meeting.

In 2022, the government had projected gross domestic product to expand 3 -- 4%.

Singapore has removed most of its COVID 19 curbs in recent months with high-profile international conferences and events returning to the city-state.