Price Stability

After the onset of the pandemic in late 2019, MAS eased monetary policy at end-March 2020, by flattening the policy slope and re-centring the policy band down to the then-prevailing level of the S$NEER. MAS subsequently maintained the 0% rate of appreciation of the S$NEER policy band in October 2020 and April 2021, with no change to the width of the policy band and the level at which it was centred. 

  • The Global Economy: In the first half of 2020, the COVID-19 pandemic and public health measures imposed to contain its spread triggered a sharp pullback in global aggregate demand and supply. Economic output slumped, but subsequently rebounded in Q3 2020 as the containment of the initial wave of infections allowed governments to partially relax mobility restrictions. However, the recovery experienced a setback in Q4 2020 as a resurgence in COVID-19 cases in many countries prompted a re-tightening in public health controls. Vaccination programmes have facilitated a gradual re-opening and pick-up in activity across a broadening set of countries into 2021. The renewed recovery was also underpinned by substantial policy support in major economies. Inflation has recently risen in a number of countries, driven to some degree by temporary factors such as supply disruptions, as well as the low base from a year ago. Variation in virus incidence has led to a widening disparity in economic outturns, reinforced by differing levels of macroeconomic policy support. The outlook remains highly uncertain and subject to downside risks from the possible emergence of new, more dangerous virus variants. The rise in inflation may prove to be stronger and more persistent than expected, although policymakers would have scope to adjust policy responses if required. 

  • The Singapore Economy: Domestic economic activity suffered its worst contraction in history in Q2 2020, before rebounding sharply in Q3 as the circuit breaker measures were lifted. The economy continued on its recovery path in the following quarters, even as GDP growth momentum decelerated. For 2020 as a whole, GDP contracted by 5.4%. As at Q1 2021, the economy had recouped the output losses incurred in H1 2020. While the recent tightening of domestic restrictions and border controls could lead to some retraction in activity in certain segments, the broader economy should still see a gradual recovery this year alongside strengthening external demand and further progress in the domestic vaccination programme. Growth performances would likely be uneven across sectors. While the prospects of sectors less affected by the pandemic, especially manufacturing, have improved, the prognosis for the worst-hit sectors, such as air transport and accommodation, remains weak as global travel restrictions are unlikely to be lifted this year. The resilience seen in financial sector activity throughout the downturn is expected to continue, supported by credit intermediation in tandem with the anticipated upturn in both domestic and external economies. With heightened uncertainty over the path of the pandemic globally and domestically, the official forecast for Singapore’s GDP growth in 2021 was maintained at 4 to 6%, with a view to revising it when there is greater clarity.  
  • Inflation: In 2020, the recession-induced downward pressures on prices caused both MAS Core Inflation and CPI-All Items inflation to fall to –0.2% from their respective outturns of 1.0% and 0.6% in 2019. Both inflation measures are expected to recover in 2021, in line with higher global inflation and stronger domestic consumption. However, the anticipated rise in core inflation will be gradual, reflecting lingering negative output gaps in some of Singapore’s key trading partners, and modest effective cost pressures in the domestic economy due in part to gains in productivity. While price pressures within the core CPI basket are expected to broaden and pick up, underlying inflation in the economy is unlikely to accelerate significantly. Apart from the remaining slack in the domestic labour market, the recent heightened alert measures could have a modest dampening effect on the pickup in underlying inflation. All in, core inflation is expected to average between 0 to 1%. Meanwhile, the forecast range for headline inflation has been revised up to 1 to 2% in 2021, from 0.5 to 1.5%, in view of recent stronger-than-expected private transport inflation. 
  • Monetary Policy: In October 2020, MAS maintained a 0% rate of appreciation of the S$NEER policy band. MAS also indicated that an accommodative policy stance would be appropriate for some time, given the muted outlook for core inflation. Since then, prospects for Singapore’s GDP growth have firmed on the back of vaccine deployment and additional fiscal support in some major economies. However, the recovery is likely to be uneven. Pandemic-induced international travel restrictions should continue to hinder the recovery of the travel-related sectors. Significant uncertainties such as the possibility of further virus mutations also remain. While core inflation should gradually rise as the negative output gap narrows, it is likely to remain below its historical average. Accordingly, in its April 2021 policy review, MAS kept the rate of appreciation of the policy band at zero percent. MAS assessed that an accommodative monetary policy stance remained appropriate as core inflation was expected to stay low in 2021.