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CONTENTS
EMERGING FROM THE
GLOBAL RECESSION
MONETARY POLICY
LIQUIDITY
MANAGEMENT
ENSURING SAFETY
AND SOUNDNESS
OF FINANCIAL INSTITUTIONS AND
FINANCIAL SYSTEM
SINGAPORE AS AN
INTERNATIONAL
FINANCIAL CENTRE
ENHANCING
OPERATIONAL
CAPABILITIES
AND RESILIENCE
CURRENCY AND
PAYMENT SYSTEM

MONETARY POLICY

Singapore’s macroeconomic policies are formulated with a medium-term orientation, and are aimed at promoting sustained, non-inflationary economic growth. As evident during the recent business cycle, monetary policy has also worked in tandem with fiscal policy to play a countercyclical role, particularly when the economy is buffeted by external shocks. MAS’ policy responses to recent global developments underscore the importance of ensuring the S$ remains an anchor of stability, especially in times of heightened uncertainty (Chart 3).

In October 2007, MAS tightened the monetary policy stance by allowing a slightly steeper appreciation of the S$ nominal effective exchange rate (S$NEER) policy band. This was followed by an upward re-centering of the band to the prevailing level of the S$NEER in April 2008. During this period, price pressures had strengthened, as a result of rapid increases in global commodity prices and a build-up in domestic cost pressures.

MAS subsequently eased monetary policy in October 2008 by shifting to a zero per cent appreciation of the S$NEER policy band, amidst expectations of moderating inflationary pressures, and the risk of a further deterioration in the external economies following the earlier dislocation in global financial markets. The policy band was then re-centered downwards in April 2009, and kept at that level in the October policy announcement. This policy stance was assessed to be appropriate in view of the weakness in the domestic economy at the time and receding inflationary pressures.

As the economy swung from severe downturn to rapid recovery over the past year, monetary policy settings have, in concert with fiscal measures, shifted from an easing stance to the withdrawal of stimulus measures and to the maintenance of conditions conducive to sustainable growth and medium-term price stability. As the Singapore economy rebounded, factor markets began to tighten. By Q1 2010, the output gap had turned positive. At the same time, global commodity prices were picking up. Accordingly, in April 2010, MAS shifted to a modest and gradual appreciation of the S$NEER policy band, in addition to an upward recentering of the band.

The tightening of monetary policy complemented the unwinding of supportive fiscal measures introduced in the FY2009 Singapore Budget to help businesses and households weather the downturn. These crisis relief measures included the Jobs Credit Scheme and the financing schemes under the Special Risk-Sharing Initiative. In contrast, the measures in the FY2010 Singapore Budget were targeted at the restructuring of the economy in order to enhance productivity over the medium to long term, as recommended by the Economic Strategies Committee.

 
 
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