Explainer-How Singapore's unique monetary policy works

By Xinghui Kok

SINGAPORE, Jan 26 (Reuters) - Singapore's cardinal slope has a unsocial method of managing monetary policy, tweaking the speech complaint of its currency alternatively of changing home involvement rates ​like galore economies.

The Monetary Authority of Singapore (MAS) sets the way of what it calls the argumentation ‌band of the Singapore dollar nominal effectual speech complaint (S$NEER), frankincense strengthening oregon weakening the section currency against those of its main trading ‌partners.

WHY DOES SINGAPORE USE THIS METHOD?

Singapore is simply a tiny and trade-reliant economy. Gross exports and imports of goods and services are much than 3 times its gross home merchandise (GDP). Almost 40 cents of each Singapore dollar spent domestically is connected imports.

That means the speech complaint has a overmuch bigger power connected ostentation than home involvement rates.

For example, ⁠an appreciation of the Singapore dollar ‌against the currencies of its large trading partners volition trim prices of imported goods and services. This dampens the prices that households person to pay.

WHAT IS THE S$NEER?

The ‍S$NEER is an scale of the Singapore dollar's trade-weighted speech complaint against the currencies of the island's large trading partners.

The cardinal slope says this allows the Singapore dollar to execute collectively successful narration to its large trading partners, which is what ​matters for wide terms levels successful Singapore.

HOW DOES THE S$NEER POLICY BAND WORK?

MAS does not acceptable the ‌precise level of the speech complaint oregon power it successful existent time. Instead, the S$NEER is allowed to determination up and down wrong a argumentation band, the nonstop levels of which are not disclosed. If it goes retired of this band, the MAS steps successful by buying oregon selling Singapore dollars.

The argumentation set has 3 parameters that the MAS tin adjust. Until 2024, these parameters were reviewed astatine slightest doubly a year, ⁠typically successful April and October.

Additional reviews tin beryllium held if ​conditions request an contiguous alteration successful settings, specified arsenic successful 2022 ​when precocious ostentation triggered 2 off-cycle moves.

From 2024, the cardinal slope started making monetary argumentation announcements each quarter, saying it allowed policymakers to supply their appraisal of the economical outlook ‍in a much timely ⁠fashion.

The 3 argumentation levers are the slope, the level and the width of the band.

Adjusting the slope volition power the gait astatine which the Singapore dollar strengthens oregon weakens.

Adjusting the level, oregon mid-point, ⁠of the argumentation set allows for an contiguous strengthening oregon weakening of the S$NEER, making this a instrumentality for drastic situations specified ‌as a recession.