MAS Tightens Stance as Iran War Fuels Inflationary Pressures

Singapore's central bank has tightened its monetary policy stance for the second time this year to mitigate inflationary pressures from higher oil and natural gas prices due to the ongoing Iran war. The Monetary Authority of Singapore (MAS) announced on July 27 that it will increase the rate of appreciation of the Singapore dollar's trade-weighted value, also known as the Singapore dollar nominal effective exchange rate (S$NEER) policy band.

According to MAS, its tightening in April has contributed to a dampening of inflationary pressures in the economy. However, external price pressures are expected to persist and pass through more broadly to domestic consumer prices in the period ahead.

The global oil benchmark Brent has risen by over 50% since the start of the year, reaching the US$100-a-barrel mark last week after a shaky ceasefire agreed upon by the US and Iran collapsed. The trade-weighted S$NEER has stayed on its gradual appreciation path, guided by MAS this year.

Sheana Yue, senior economist at UK-based research firm Oxford Economics, noted that MAS' latest tightening reflects its focus on medium-term inflation risk rather than recent inflation outturns. 'Inflation has so far remained benign, but higher crude and refined fuel prices are likely to feed through into domestic fuel, freight, and imported goods costs, keeping inflation risks tilted to the upside.'