MAS Monetary Policy Statement

10 October 2008


1   MAS has maintained the policy of a modest and gradual appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band since April 2004.  In October 2007, the policy was tightened through a slight increase in the slope of the band, following which the policy band was re-centred at the then-prevailing level of the S$NEER in April 2008.  The policy stance has helped to mitigate inflationary pressures amidst sustained economic growth and rising global commodity prices.

Chart 1
Nominal Effective Exchange Rate (S$NEER)


2   The S$NEER had fluctuated in the upper half of the policy band between April and July 2008, before easing since August against a broad-based strengthening of the US$.  (Chart 1)  The pull-back of the S$NEER also reflected heightened domestic growth concerns and a moderation of inflationary pressures.

3   Meanwhile, domestic interbank rates edged lower in tandem with the stronger S$ following the April monetary policy announcement.  More recently, the strain in global money markets caused the domestic three-month interbank rate to increase temporarily, but it has since eased to 1.88% at end-September.

4   The Singapore economy has weakened over the course of 2008, alongside an escalation in the turmoil in financial markets and a more severe deceleration in global economic activity.  The Advance Estimates released by the Ministry of Trade and Industry today show that Singapore’s GDP declined by 6.3% on a quarter-on-quarter seasonally adjusted annualised basis in Q3 2008.  On a year-ago basis, activity also contracted mildly.  The slowdown was generally broad based as external shocks were transmitted to the domestic economy via both the financial and trade channels.  Nonetheless, certain industries, such as transport & storage, information & communications, and bank intermediation, continued to hold up, providing some support to GDP growth.
5   Looking ahead, the outlook for the global economy has deteriorated amidst heightened risk aversion and deleveraging in the financial sector.  After a brief rebound in Q2 2008, economic conditions in the US have worsened as the effects of the fiscal stimulus package dissipated.  The Japanese and Eurozone economies contracted in Q2 2008 and near-term conditions remain difficult.  Economies in Asia, including China and India, are also expected to slow. 

6   These developments have presented new uncertainties for the Singapore economy.  The risks to external demand conditions continue to be on the downside, and a more severe global downturn cannot be discounted.  Slower growth in Asia will restrain activity in a range of services industries in Singapore such as transport-hub and tourism.  Against this less favourable environment, Singapore’s GDP growth forecast for 2008 has been revised from 4-5% to around 3%.  Economic growth will likely remain below its potential rate over the next few quarters.  Prospects of a recovery in the latter half of 2009 will depend significantly on how conditions evolve in the G3 and regional economies.

7   CPI inflation has peaked, declining from 7.5% in Q2 2008 to 6.5% in July-August on a year-on-year basis.  In addition, it has fallen on a quarter-on-quarter basis, easing from 2.1% in Q1 to 1.4% in Q2 and 1.1% in July-August.  The sequential fall in CPI inflation reflects a moderation of both external and domestic price pressures.  Externally, the recent sharp decline in commodity prices has helped to dampen global inflation.  Domestically, the effects of past monetary policy tightening measures and the slowing economy have alleviated price pressures and eased resource constraints.  Cost pressures have begun to recede, as evidenced by the recent fall in commercial rentals and more subdued wage increases.      

8   CPI inflation is projected to come within the 6-7% forecast range in 2008, while the MAS underlying inflation measure, which excludes accommodation and private road transport costs, is expected to be 5-6%.  Over the coming months and into early 2009, the headline inflation rate will continue to be impacted by the pass-through of some earlier domestic cost increases.  Nevertheless, CPI inflation is expected to trend down in 2009 as the global and domestic economies slow and for the year as a whole it is forecast to moderate to 2.5-3.5%, with the MAS underlying inflation coming down to around 2%.


9   Against the backdrop of a weakening external economic environment and continuing stresses in global financial markets, the growth of the Singapore economy is expected to remain below potential in the period ahead.  Concomitantly, external and domestic inflationary pressures are likely to ease.
10   MAS is therefore shifting its policy stance to a zero percent appreciation of the S$NEER policy band.  This policy maintains the current level of the policy band, and there will be no re-centring of the band or change to its width.  MAS stands ready to intervene to dampen excessive volatility in the S$NEER should this become necessary.  MAS will also continue to closely monitor developments in the external environment and their impact on the Singapore economy.






Last Modified on 26/11/2016