Singapore's central bank 'ready to act' against inflation risks: Ravi Menon

SINGAPORE (BLOOMBERG) – Singapore’s top central banker has said the monetary authority is watching for signs of accelerating inflation and is ready to act, underscoring how policymakers globally are refocusing attention on rising prices after their extraordinary efforts to weather the pandemic.

“Overall, I would say the balance of risk has shifted towards inflation,” Mr Ravi Menon, managing director of the Monetary Authority of Singapore (MAS), said in an interview with Bloomberg Television broadcast on Tuesday (Nov 2). “We will be very watchful of any risk of escalation in prices and we stand ready to act.”

Like its counterparts globally, Singapore’s central bank is watching closely for signs that rising prices will become a persistent issue rather than a transitory problem caused by pandemic snags. MAS tightened monetary policy last month amid signs that supply chain and labour market disruptions were driving up consumer prices.

The longer that supply side disruptions last, the more there is a risk that inflation becomes entrenched as inflation expectations build up. “That’s a big unknown and that’s a risk factor,” Mr Menon said.

Last week, in its twice-yearly macroeconomic review, the MAS flagged that supply chain disruptions and upward pressure on wages could linger longer than anticipated.

The central bank has said its measure of core inflation, which removes private transport and accommodation costs, will average near the upper end of its 0 per cent to 1 per cent range this year and accelerate to 1 per cent to 2 per cent next year. It sees headline inflation at around 2 per cent this year and expects it to average 1.5 per cent to 2.5 per cent next year.

In September, the latest month of available data, inflation came in at 2.5 per cent and core prices rose 1.2 per cent, both slightly above estimates.

Analysts at Citigroup said in a report last week that they see room for further policy tightening next year as cost pressures intensify. They expect MAS to steepen the slope of its currency band – the bank’s main policy tool – again in April after October’s surprise move.

Mr Menon said in the interview that last month’s tightening “was deliberately small because the risks to growth have not disappeared, and it’s not as if inflation is out of hand”.

MAS will keep track of the growth and inflation trajectories over the next few quarters, he said, adding that on the policy front, “nothing is pre-judged at this point”.

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