The Singapore economy slowed in 2014 against the backdrop of continued, albeit uneven, growth across the major economies. Domestic supply-side constraints also capped the extent to which the external-oriented sectors benefitted from the uplift in global demand, while some of the domestic-oriented sectors that are more reliant on labour and faced greater competition also experienced profit margin pressures.

While CPI-All Items inflation moderated, MAS Core Inflation stayed relatively firm over the first three quarters of 2014, as prices of food imported from the region rose amid supply disruptions and businesses passed on some of the accumulated wage costs to consumer prices.

To contain imported and domestic inflation and anchor inflation expectations, MAS kept the S$ nominal effective exchange rate (S$NEER) policy band on a modest and gradual appreciation path in April and October 2014, with no change to the slope, width or the level at which it was centred.

Following the October 2014 monetary policy statement, global oil prices fell sharply in Q4. At the same time, the pass-through of accumulated business costs to consumer prices was weaker than expected, and government subsidies led to lower prices of healthcare services. This resulted in a significant downshift in the outlook for inflation, despite expectations that the economy will continue growing at a moderate pace in 2015.

On 28 January 2015, MAS lowered the forecasts for CPI-All Items inflation and MAS Core Inflation for 2015, and eased monetary policy in an off-cycle policy announcement. The S$NEER policy band was kept on a modest and gradual appreciation path, but its slope was reduced.

The Singapore economy subsequently evolved as envisaged in the January announcement. Real GDP is on track to expand by 2-4% in 2015, and there have been no changes to the MAS Core and CPI-All Items inflation forecasts. Accordingly, MAS kept the monetary policy stance unchanged in April 2015. This policy stance was deemed consistent with the benign inflation outlook and moderate growth prospects for 2015, and appropriate for ensuring medium-term price stability in the economy. Chart 3 traces the evolution of monetary policy against the backdrop of changes in key macroeconomic variables in recent years.