MAS tightens monetary policy to address nation’s inflation

Jan 26, 2022 – Wednesday

SINGAPORE – In addressing rising inflationary pressures, Singapore’s central bank tightened its monetary policy for the 2nd time within three months.

The Monetary Authority of Singapore made this sudden off-cycle move on Tuesday (Jan 25) to alleviate potential currency devaluation and respond to inflation, which climbed to 2.1% on a year-on-year basis last month, the highest increase since July 2014.

The move is only the 2nd time the MAS has acted outside of its biannual cycles since 2003. According to a spokesperson, “This move builds on the pre-emptive shift to an appreciating stance in October 2021 and is appropriate for ensuring medium-term price stability.”

How does this affect consumers?

Given the challenges that the pandemic presented consumers with, from difficulties in the labour market to financial constraints, uncontrolled inflation would equate to a decrease in purchasing power.

In layman’s terms: Say you have a $10 budget. You can use that $10 to buy a Teaparty meal and still have approximately $4 for dessert or for you to save and accumulate. With inflation, your $10 budget may only give you $2 after buying the same Teaparty meal, or even worse, it may not be enough for you to afford the same meal.

In another article by The Straits Times, the author warns consumers to “be prepared to pay more for Chinese New Year goodies even as businesses try to absorb the higher costs from inflation and patchy global supply chains.

The ironic thing about inflation was encapsulated in a statement by Ms Cheryl Chann, who said, “Inflation begets inflation”. If consumers act on the fear that prices will go up and bring their purchases forward, this creates an artificial demand, resulting in inflation. It becomes a self-fulfilling prophecy of its own.

By making this move and announcing the policy as early as possible, MAS sends consumers a clear signal and an assurance that it addresses consumers’ concerns.

 

Source:

1 https://www.straitstimes.com/business/economy/mas-tightens-singdollar-policy-to-counter-rising-inflation

2 https://www.straitstimes.com/singapore/inflation-puts-pressure-on-prices-of-chinese-new-year-goodies