By Aradhana Aravindan and Anshuman Daga
SINGAPORE (Reuters) - Singapore's central bank tightened its monetary policy on Thursday, saying the widely forecast move will slow inflation momentum as the city state ramps up its battle against soaring prices made worse by the Ukraine war and global supply snags.
The policy tightening, the third in the past six months, came as separate data showed Singapore's economic momentum waning over the first quarter.
The local dollar jumped briefly after the Monetary Authority of Singapore (MAS) re-centred the mid-point of the exchange rate policy band known as the Nominal Effective Exchange Rate, or S$NEER, at its prevailing level. It also increased slightly the rate of appreciation of the policy band.
It was the first time in 12 years that the MAS used these two tools simultaneously to tighten policy, underlining policymakers' worries about potential price instability which has seen the U.S. Federal Reserve set an aggressive path to tightening monetary conditions.
There was no change to the width of the MAS policy band.
"The war in Ukraine has driven global inflation forecasts higher and dented the outlook for growth," MAS said in a statement.
"The fresh shocks to global commodity prices and supply chains are adding to domestic cost pressures," it said, warning that inflation risks remain "elevated over the medium term."
Singapore, a major travel and business hub, made its biggest reopening moves https://www.reuters.com/world/asia-pacific/singapore-relax-more-covid-curbs-including-overseas-arrivals-2022-03-24 from the COVID-19 pandemic through late March and early April, easing local restrictions and allowing vaccinated travellers from anywhere in the world to enter without having to quarantine.
MORE TIGHTENING?
"The door is definitely not closed yet," said Selena Ling, head of treasury research and strategy at OCBC, referring to another potential tightening in October.
The MAS manages monetary policy through exchange rate settings, rather than interest rates, because trade flows dwarf its economy, letting the Singapore dollar rise or fall against the currencies of its main trading partners within an undisclosed band.
It adjusts its policy via three levers: the slope, mid-point and width of the policy band.
All 16 economists polled by Reuters expected the MAS to tighten but they were divided on which parameters it would change.
The Singapore dollar strengthened about 0.5% after the statement and hit a one-week high of S$1.3552 per dollar.