Singapore tightens monetary policy as rising oil prices rekindle inflation risk

Singapore tightened monetary policy for a second consecutive day on Monday, taking a preemptive step against a new rise in oil prices even as inflation at home remains subdued.

The Monetary Authority of Singapore said it would “very slightly” increase the appreciation rate of the Singapore Dollar’s nominal effective exchange rate policy band, with a smaller adjustment from April. The width of the band and the level at which it was centered were left unchanged.

Unlike most central banks, MAS manages medium-term price stability by managing the Singapore dollar exchange rate against a trade-weighted basket of currencies over an undisclosed range, rather than setting interest rates.

“In an environment where uncertainty remains, this adjusted adjustment in the policy stance builds on the tightening in April,” MAS said in a statement. he said.

Singapore’s core inflation, which excludes accommodation and transport costs, rose to 1.6% in June from 1.4% in May; This was near the bottom of MAS’s 1.5-2.5% forecast range for this year, with headline inflation at 1.9%.

While transportation fuel prices have risen rapidly since the beginning of the U.S.-Iran conflict, declines in services inflation, particularly in healthcare, communications and education, have helped offset much of the upward pressure on prices, according to FitchSolutions firm BMI.

“Import cost pressures are often reflected in broader consumer prices with a lag, so we still expect inflation to rise in the coming months,” the intelligence group said.

Singapore’s almost complete dependence on imported energy leaves it exposed to higher oil prices. Brent crude rose back above $100 a barrel after Houthi militants attacked two Saudi tankers in the Red Sea last week, deepening a supply threat that had eased before the collapse of the Middle East ceasefire.

The economy has so far shrugged off the turmoil as demand for artificial intelligence has powered electronics exports. Gross domestic product rose 5.7% in the second quarter from a year earlier, above the 5.5% average forecast in a Reuters poll and well above the government’s full-year forecast of 2%-4%.