Monetary Policy and Targeted Measures to Rein in Food and Accommodation Prices

11 Mr Yip Hon Weng asked the Prime Minister in light of Singapore’s core inflation at 5.3% in September 2022 being at the highest since November 2008 (a) whether Singapore will consider tightening its monetary policy again; and (b) whether the Government will consider more targeted measures to rein in food and accommodation prices.

The Minister of State for Trade and Industry (Mr Alvin Tan) (for the Prime Minister): Mr Deputy Speaker, MAS began tightening monetary policy in October 2021. And it was among the earlier central banks in the world to do so, at a time when the pickup in global inflation was still quite modest. In October, it tightened monetary policy for a fifth time in the last 13 months, by re-centring up the mid-point of the Singapore dollar nominal effective exchange rate (S$NEER) policy band.

MAS expects core inflation to stay firm for the rest of this year and into the first half of 2023, before slowing more discernibly in the second half.

Monetary policy takes time to affect inflation. The effects of MAS' successive monetary policy moves are still working their way through the economy. It will also take time for external- and domestic-induced price pressures to ease more discernibly.

The cumulative effects of the five monetary policy tightening moves are estimated to dampen core inflation by an average of 1.5 percentage points each year, over 2022 to 2023.

MAS will continue to deploy monetary policy as appropriate, to ensure medium-term price stability, while recognising near-term risks to economic growth from a slowing and uncertain global economy.

The Member asked about whether the Government will consider more targeted measures to rein in food and accommodation prices. On food, the Minister for Trade and Industry had, in October 2022, spoken about how (a) the appreciating Singapore dollar, (b) the diversification of Singapore's food supply sources and (c) Government assistance to lower-income and vulnerable Singaporeans should mitigate the effects of higher global food prices.

As for accommodation prices, MND, HDB and MAS have, as Members know, taken steps to promote sustainable conditions in the property market. The Government has also increased market subsidies to ensure that prices of new HDB flats remain affordable, as well as increased supply in both the public and private housing markets.

Mr Yip Hon Weng (Yio Chu Kang): I thank the Minister of State for his answer. Can the Minister of State clarify our exchange rate policy and how MAS manages monetary policy? If monetary policy is tightened, would the Government ensure that the impact on unemployment in Singapore would not be adversely affected and how would MAS work with MOM on this?

Mr Alvin Tan: Deputy Speaker, I thank the hon Member for his supplementary questions. First of all, let me start with the second question. Inflation affects everyone – employees, employers alike. We are now undergoing a very dynamic, volatile and challenging global environment. Employers must, on their own and also together with our partners in the tripartite arrangement, make their companies more productive, so that they can pay their employees more to cope with inflation.

Employers, employees and the Government work with tripartite partners to press on and we work together with all of these partners to transform our economy, to raise our productivity and also to turn all of the current challenges, which are not just faced by Singapore, but globally, into opportunities.

We have launched 23 Industry Transformation Maps (ITMs). These ITMs help to sharpen our competitiveness, for both our companies and our workers. They help to deepen skills and also set the stage for us to raise productivity.

All this, in turn, will, hopefully, also help us to raise and to have more and better wages.

The Government is helping employers by restructuring businesses and also upskilling employees. We have a couple of different schemes, including Workforce Singapore's Job Redesign and Reskilling programmes; Enterprise Singapore has the Enterprise Development Grant, as well as the Productivity Solutions Grant.

And on the whole, on the macroeconomic picture, our Economic Development Board is continuing to attract investments, even within this very volatile economic environment. That helps. And the profile of investments has now shifted also to higher value-added, more innovative investments into Singapore and that will help to provide for, create more higher paying jobs, as well as good wage growth.

On the Member's first question about the fundamentals and the basics of our monetary policy, I thought it was useful to clarify to Members of this House, the market, general public, as well as students, MAS' unique approach to monetary policy, given that the Parliamentary Question (PQ) is also related to monetary policy.

Yesterday, Assoc Prof Jamus Lim said in this House, and I quote, "I am befuddled because even now, the Government routinely alters levers or policies, such as the interest rate where there is uncertainty on a year-to-year basis about the level of interest rate". I wanted to clarify that, unlike most central banks which target interest rates, MAS uses the nominal exchange rate as the intermediate target of monetary policy.

This is a very unique approach to monetary policy. In fact, MAS' exchange rate policy is Singapore's only form of monetary policy. As Singapore's monetary policy is centred on the exchange rate and our capital markets are open, domestic interest rates are largely determined by global interest rates and foreign exchange rate market expectations of the Singapore dollar.

So, I thought it would be very useful for us to just clarify that MAS' unique approach to monetary policy is centred on the exchange rate monetary policy.

Mr Deputy Speaker: Mr Leong Mun Wai.

Mr Leong Mun Wai (Non-Constituency Member): Thank you, Deputy Speaker. I would like to ask the Minister of State two supplementary questions. First, one indicator of whether MAS has done enough to tighten policies is to look at money supply growth. Does the Minister of State happen to have data, figures about the money growth in Singapore's economy in 2020 to 2021, and what is the latest in 2022?

The second question, what is the impact of the accumulation of reserves by MAS over the last two years on the inflation picture? Does MAS or the Minister of State have any opinion or views to share on that? Because we have been accumulating reserves at a much higher, faster rate, than in the past.

We all know, by now, that in 2021, MAS had accumulated more than $200 billion of reserves. Our normal rate of accumulation is about $40 billion to $50 billion a year. So, what is the impact of that? Does MAS or the Minister of State have any views to share on that?

Mr Alvin Tan: Deputy Speaker, I thank the hon Member Mr Leong Mun Wai for his supplementary questions. I invite him to file a separate PQ. But I think MAS' monetary policy, as we mentioned, is very much exchange rate driven. Right now, central banks all over the world have, by and large, also tightened monetary policy to combat inflation. I think what we are trying to do is also to make sure that, in a very dynamic environment, we monitor the rate of increase in terms of prices, as I mentioned in my reply. But I invite the Member to file a separate PQ.

Mr Deputy Speaker: Last supplementary question. Assoc Prof Jamus Lim.

Assoc Prof Jamus Jerome Lim (Sengkang): I thank the Minister of State. Since I was mentioned, I thought it would be useful to clarify with a follow-up question. Does MAS actually believe that its targeting of the exchange rate – which I understand, indeed, is the MAS' intermediate target; I teach that in my classes – does not actually have any influence on the short-term interest rate prevailing in the money markets?

Mr Alvin Tan: I thank the Member for his supplementary question. As I mentioned earlier on, MAS' monetary policy is focused on – in fact, it is our only approach towards monetary policy – our exchange rate-based policy. Interest rates are set by financial institutions. MAS, because of our open trade architecture, we use our exchange rate, not our interest rate, to manage inflation. So, I think that is critical.

The global environment, as the hon Member knows, is very fluid. That is why, over the course of a year, we have been very careful, very calibrated in our approach towards monetary policy. We have tightened monetary policy five times. We will deploy monetary policy as appropriate and as the circumstances change.