Monetary Policy in an Increasingly
Volatile Environment
The eventful recovery path of the
Singapore economy represented a major challenge to MAS on the
policy making front. Against this setting, we adopted a flexible
approach in terms of monetary policy management. Chart 27 below
shows the timeline of the various monetary policy reviews by
MAS in 2003 and 2004.
Amid the general climate of cost
reduction (for example the Central Provident Fund cuts) and
the slack in the domestic economy in 2003, MAS has allowed the
exchange rate to adjust to the low cost environment to give
the domestic economy adequate support. In particular, in July
2003, we re-centred the exchange rate policy band at the prevailing
level of the trade-weighted S$, while maintaining a zero per
cent appreciation of the trade-weighted S$ policy path, with
no change in the width of the band. The re-centring of the policy
band at a lower level represented an easing of the monetary
policy stance, which was assessed to be appropriate in supporting
the incipient recovery in the Singapore economy in a low inflation
environment. Against the backdrop of a soft global interest
rates environment, coupled with the easy domestic liquidity
conditions, interest rates have remained low throughout 2003.
However, as signs of a firmer and more broad-based economic
recovery emerged in late 2003, coupled with a potential rise
in inflationary pressures, MAS signalled a shift in policy from
a zero per cent appreciation path to a policy of modest and
gradual appreciation of the trade-weighted S$, starting from
the mid-point of the policy band in April 2004. This policy
stance was assessed to be supportive of economic growth, while
ensuring low and stable inflation over the medium-term (See
Chart 27).
Enhancing Risk-focused Supervisory Approach
Box 1 – Fostering a Sound and Progressive
Financial Services Sector
