Monetary Policy Statements
Published Date: 12 October 2018

MAS Monetary Policy Statement - October 2018

12 October 2018


1.   In the April 2018 Monetary Policy Statement, MAS increased slightly the slope of the S$NEER policy band from the previous zero percent. There was no change to the width of the policy band or the level at which it was centred. This policy stance was assessed to be appropriate given that the Singapore economy was expected to remain on a steady expansion path, while MAS Core Inflation was projected to rise.

  Chart 1
S$ Nominal Effective Exchange Rate (S$NEER)

2.   Apart from brief periods of decline, the S$NEER has appreciated in the upper half of the policy band since April 2018. This reflected in part sharper depreciations in a number of regional currencies against the US dollar, relative to the S$. The three-month S$ SIBOR rose from 1.5% in April 2018 to 1.6% as at end-September.


3.   The Singapore economy has largely evolved as envisaged in the April 2018 policy review, and is likely to expand at a slower but steady pace for the rest of this year and in 2019. The level of economic activity is assessed to be slightly above potential and MAS Core Inflation is projected to rise modestly in the near term before stabilising at just below 2%.

Growth Backdrop

4.   According to the Advance Estimates released by the Ministry of Trade and Industry today, the Singapore economy grew by 4.7% on a quarter-on-quarter seasonally-adjusted annualised basis in Q3 2018, an increase from the 1.2% recorded in Q2. Compared to a year ago, GDP expanded by 2.6% in Q3 2018, following strong average growth of 4.3% in H1.

5.   Over the last six months, the drivers of economic activity have shifted. The contribution of the manufacturing sector to Singapore’s GDP growth has waned following several quarters of above-trend expansions. This has largely reflected the maturing of the global electronics cycle. In comparison, growth in the services sectors stayed firm, mainly driven by financial and business services, as well as wholesale & retail trade.

6.   Global growth has been relatively resilient thus far. In 2019, trade frictions between some major economies and the uncertainty they pose could weigh more discernibly on global economic activity.

7.   Barring a significant setback in global growth, the Singapore economy should expand at a pace close to potential in 2019. Although manufacturing will remain an important driver of GDP growth, its contribution will moderate. The ICT, financial and business services sectors will benefit from steady regional growth and domestic digitalisation efforts, while the discretionary services sectors, such as retail and food services, should see some recovery.

8.   Singapore’s GDP growth should come in within the upper half of the 2.5–3.5% forecast range in 2018 and moderate slightly in 2019. A small, positive output gap is expected to persist into 2019, imparting modest inflationary pressures.

Inflation Trend

9.   MAS Core Inflation, which excludes the costs of accommodation and private road transport, rose to an average of 1.9% year-on-year in July–August 2018, from 1.5% in the first half of the year. This was due to stronger price increases in oil-related, as well as food and retail items. Reflecting the rise in core inflation and a slower pace of decline in accommodation costs, CPI-All Items inflation picked up to 0.7% from 0.3% over the same period.

10.   In the quarters ahead, imported inflation is likely to increase on account of higher global oil and food prices. On the domestic front, the improving labour market should underpin a faster pace of wage growth in 2018 and 2019 compared to last year. Growth in unit labour cost for services has picked up recently. The pass-through of higher import and labour costs to consumer prices could increase as domestic demand strengthens further. Nevertheless, the extent of price increases will be restrained by greater market competition in several consumer segments, such as telecommunications, electricity and retail.

11.   As for the non-core components of the CPI, private road transport costs are expected to increase in 2019 due to an anticipated tapering in the supply of COEs. Imputed rentals on owner-occupied homes will continue to fall, but by a lesser extent than in 2018 as rental demand gradually picks up.

12.   MAS Core Inflation should edge up further to around 2% in the months ahead. For 2018 as a whole, it will come in within the forecast range of 1.5–2%, and average 1.5–2.5% in 2019. CPI-All Items inflation is projected to be about 0.5% in 2018 before picking up to 1–2% in 2019.


13.   The Singapore economy is likely to remain on its steady expansion path in the quarters ahead, keeping output slightly above potential. MAS Core Inflation will experience modest but continuing pressures, before levelling off at just below 2% over the medium term.

14.   MAS has therefore decided to increase slightly the slope of the S$NEER policy band. The width of the policy band and the level at which it is centred will be unchanged. This measured adjustment follows the slight increase in the slope of the policy band in April 2018 from zero percent previously, and is consistent with a modest and gradual appreciation path of the S$NEER policy band that will ensure medium-term price stability.



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