Economic Developments and Monetary Policy STRENGTHENING THE MONETARY POLICY FORMULATION PROCESS The lead-up to the semi-annual Monetary Policy Statement (MPS) in April and October represents the peak of activity for monetary policy formulation in MAS. Preparation starts six weeks before the release of the MPS, with a comprehensive assessment of conditions in the external macroeconomic environment and key sectors such as IT (See Figure 1). This provides the backdrop for the baseline forecast for the Singapore economy, using both a “bottom-up” industry-based surveillance approach as well as a “top-down” macroeconomic modeling approach. These forecasts as well as the results of counterfactual scenarios on the external environment are used to identify alternative policy paths of the trade-weighted SGD exchange rate over the medium term. The macroeconomic implications of each policy option are assessed with the aid of the Monetary Model of Singapore (MMS), and a recommendation is made on the optimal policy path. The findings and recommendation are presented to the Monetary Investment and Policy Meeting (MIPM) committee for deliberation and decision. The monetary policy stance is then finalised and announced, followed by briefings to the media and private sector analysts in conjunction with the release of the Macroeconomic Review. This document presents MAS’ analysis and assessment of macroeconomic developments in the Singapore economy, and conveys to the public the basis for the policy decision. Over the past year, several initiatives were launched to further strengthen this policy formulation process. On the surveillance front, the Economic Policy Department (EPD) embarked on an industry consultation process to gather views from key manufacturers, industry associations and service providers on the role of exchange rates in their operations, and the prospects for their industries more generally (See Box 12). Given that the performance of the Singapore economy is tied closely to the fortunes of the global IT industry, we are continuously strengthening our surveillance and forecasting capabilities of the global electronics industry. A significant improvement has been the construction of an Electronics Leading Indicator and an Electronics Manufacturers’ Index, which provide additional tools in forecasting the domestic electronics industry. On the macro-modeling front, there were further improvements to the MMS, including developing a demographic module. This also allows the MMS to incorporate various demographic assumptions in estimating Singapore’s long-term growth potential.