Singapore's central bank on Tuesday unexpectedly tightened its currency policy as a pre-emptive move to stem the inflationary impact of supply-side constraints and rising commodity prices.
In an announcement before its scheduled policy meeting in April, the Monetary Authority of Singapore said it will slightly raise the rate of the Singapore dollar's appreciation against a basket of currencies.
This is the second tightening move the bank has made in two months. It had previously slightly increased the slope of its Singapore dollar nominal effective exchange rate policy band from the then slope of zero.
Unlike most central banks, the MAS uses currency as a policy tool to damp inflationary expectations and support growth as trade flows dwarf the island nation's domestic activity.
To do this, the Singapore dollar operates under a managed float-currency regime based on a basket of currencies representing the city-state's major trade partners. The rate is allowed to trade within an undisclosed band.
The central bank said Tuesday that the width of the policy band and the level at which it is centred are unchanged.
It said that since October, there has been a further upward shift in the country's inflation outlook that reflected both global and domestic factors.
"MAS has therefore assessed that it is appropriate to make another pre-emptive adjustment in its monetary policy stance at this juncture," the central bank said.
The central bank now projects 2022 core inflation at 2.0%-3.0%, compared with the 1.0%-2.0% estimated in October.
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