As the virus-ravaged economy recovers, Singapore tightens monetary policy.

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As the virus-ravaged economy recovers, Singapore tightens monetary policy.

On Thursday, Singapore’s central bank tightened monetary policy for the first time in three years, making it the latest country to take action against inflation as coronavirus-affected economies reopen amid supply chain bottlenecks.

Central bankers throughout the world are balancing the need to encourage economic recovery with easy financial conditions while avoiding a long-term price hike.

The move by the Monetary Authority of Singapore (MAS) comes as early estimates showed the economy increased 6.5 percent year on year in the third quarter, extending the city-recovery state’s from its worst-ever recession last year owing to the pandemic.

Singapore has adopted a policy of living with the virus by increasing its vaccination rate, which is now about 85 percent, as the economy opens up and those who have been vaccinated may travel more easily.

As supply systems fail to meet increased demand, inflation has risen around the world, leading central banks such as those in New Zealand and South Korea to tighten monetary policy.

“MAS’ approach is in response to concerns that global inflation may remain elevated for longer than currently recognized,” Song Seng Wun, a regional economist at CIMB Private Banking, explained.

“For Singapore, which imports everything from food to shoes, a stronger currency rate is unavoidable in order to keep inflation as low as possible,” he told AFP.

This is especially important because the economy is likely to continue rising next year as additional markets open up and travel picks up, he noted.

Singapore’s monetary policy is implemented through the exchange rate, which is controlled against a basket of the country’s key trading partners’ currencies.

The Monetary Authority of Singapore (MAS) announced on Thursday that it will “slightly” increase the slope of the Singapore dollar’s exchange policy range from zero percent, allowing for a moderate appreciation of the currency.

It stated that this “would assure price stability over the medium term while acknowledging the dangers to the economic recovery.”

Singapore has recorded almost 135,000 viral infections but only 192 deaths, which is a very low number when compared to other countries.

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