Parliamentary Replies
Published Date: 09 May 2022

Reply to Parliamentary Question on Singdollar and Export Competitiveness




Date: For Parliament Sitting on 9 May 2022

Name and Constituency of Member of Parliament

Mr Desmond Choo, MP, Tampines GRC


To ask the Prime Minister in light of the tighter monetary policy stance taken by MAS (a) what is the projected impact on our trade exports from the strengthening of the Singapore dollar; (b) how will the Government ensure that the strengthened Singapore dollar does not adversely impact our export competitiveness in the long run; and (c) whether the Ministry will continue to strengthen the Singapore dollar if core inflation does not moderate over the next few months.

Answer by Mr Alvin Tan, Minister of State, Ministry of Trade and Industry and Ministry of Culture, Community and Youth, and Board member of MAS, on behalf of Mr Tharman Shanmugaratnam, Senior Minister and Minister in charge of MAS:

1. MAS’ monetary policy is aimed at keeping inflation low, especially over the medium term. Achieving low inflation also supports sustained economic growth.

2. MAS seeks to achieve this through an exchange rate-centred monetary policy, in particular, by managing the Singapore dollar against a basket of currencies of Singapore’s major trading partners. When inflationary pressures build up, MAS allows the trade-weighted exchange rate to appreciate faster, thereby helping to reduce imported inflation. MAS has tightened its monetary policy stance three times since October 2021, when the Authority shifted to a slight appreciation of the policy band within which the exchange rate is managed. This has been in line with rising global price pressures and the improvement in external economic conditions.

3. The strengthening of the Singapore dollar is necessary to dampen inflation and help preserve the purchasing power of businesses and households. It is not expected to have a significant negative impact on Singapore’s exports. Growth in non-oil domestic exports has remained firm in Q1 2022. With continuing uncertainty in the global economic environment, Singapore’s exports are primarily dependent on demand rather than our exchange rate. This is borne out in EDB's latest survey of Business Expectations of the Manufacturing Sector, which showed that the Singapore dollar exchange rate is not a key limiting factor for manufacturing firms' export orders. Singapore’s exports are generally in high value-added products and services where demand is less sensitive to price, and therefore, exchange rate changes. Further, a stronger exchange rate helps reduce the import costs faced by our export industries.

4. MAS expects core inflation to continue to rise in the coming months before peaking at around 4% in Q3 this year.

5. Inflation is however expected to remain at elevated rates for some time, higher than what we have experienced in recent years. This has been primarily due to pressures in global energy and other commodity markets.

6. However, because MAS began shifting its policy stance early, it has been able to respond to rising inflationary pressure through gradual shifts in exchange rate policy, including in its latest April Monetary Policy Statement. Had MAS not begun tightening policy last year, ahead of many central banks, it would have had to allow for a steeper appreciation of the exchange rate.

7. MAS’ monetary policy response is also part of the Government’s multi-pronged strategy to deal with rising inflationary pressures. As Members know, the Government has set aside considerable resources to help Singapore businesses, especially SMEs, and our households cope with higher costs.