DYNAMICS OF CENTRAL BANKS
The first thing to note is that unlike most central banks, the MAS does not conduct an interest rate policy, but an exchange rate policy which helps manage imported inflation by strengthening the weighted Singapore dollar through exchanges.
Second, the reality is that the world has faced both supply shocks, initially induced by the COVID-19 pandemic lockdowns, but more recently due to the Russian-Ukrainian war and also rivalry U.S.-China on advanced manufacturing capabilities such as semiconductors.
So while tighter monetary policy may dampen demand, it will not directly address supply-side constraints.
In addition, the relative dynamics of central banks also matter.
While MAS started tightening S$NEER policy early in October 2021 and has completed five cycles of tightening, it should also be noted that the US Federal Reserve has aggressively accelerated its interest rate hikes for three consecutive years. 75- basis point hikes. In the past eight months alone, the Fed has raised rates by a total of 300 basis points, or 3%.
This means that companies that import intermediate inputs can benefit from a stronger Singapore dollar, which has appreciated against many regional currencies. But this is not the case against the US dollar.
For exporters, those targeting the US market will be less affected, but those selling to regional markets could face competitive pressures.
For Singaporeans who want to travel or study abroad, they can also celebrate the stronger Singdollar, especially when heading to Japan, Europe or the UK.