The Monetary Authority of Singapore (MAS) has tightened its monetary policy since October 2021 to keep inflation low and ensure medium-term price stability, which helped curb imported inflationary pressures and led to lower domestic inflation, the Business Times reported.
MAS' net loss in the last financial year does not impact the government's net investment returns, and the authority will still make a contribution to the government's consolidated fund based on past profits, the story said.
“So inflation would have stayed higher for much longer and brought about much more significant increases in the cost of living for households," Minister of State for Trade and Industry Alvin Tan told Parliament Aug 2, the Times reported. "The government recognizes that MAS’ contributions will vary considerably from year to year and has therefore smoothened the revenue volatility by requiring the annual contributions made by MAS to be paid in equal proportions over a period of three years,”
According to a news release, core inflation would have peaked at 7.2% yearly if the Monetary Authority of Singapore had not tightened monetary policy from October 2021, the Times reported. This is 1.9 percentage points more than the actual peak, which occurred in the first quarter of 2023 and was 5.4% year over year.
Hazel Poa, a member of Parliament who belongs to the Singapore Party's non-constituency, asked what the advantages of a strong Singapore currency policy were, the Times reported. Yip Hon Weng of the People's Action Party questioned how the MAS manages inflation without suffering losses.
Tan, a member of the MAS board as well, responded that the goal of the central bank's monetary policy is to maintain moderate inflation and guarantee medium-term price stability. It does not consider any potential effects on MAS's revenues because doing so would be inconsistent with MAS's mission, the Times reported.
This is akin to the way that other significant central banks carry out their monetary policies, the story said. The minister observed that many of them have also disclosed losses brought on by their monetary policy. Tan stated that MAS has been effective in reducing imported inflationary pressures through its five tightening measures from October 2021. Singapore's import price index decreased by 14% between May 2022 and June 2023, which helped to lessen domestic inflation on a monthly, seasonally adjusted basis. From a peak of 9.1% in June 2022 to 2.2% in June 2023, core inflation decreased, the Times said.
Yip also inquired as to how the government's budget will be affected by MAS' net loss.Tan stated that the net investment returns (NIR) are unaffected by short-term performance because they are based on the long-term anticipated returns from investments made by MAS, GIC, and Temasek.
Therefore, Tan concluded, the government's NIR is unaffected by MAS's net loss from the previous fiscal year, the Times said. In consideration of corporate income tax, MAS contributes to the government's consolidated fund similarly to other statutory bodies. This is calculated using 17% of the net profit for the year, which includes the cumulative losses from prior fiscal years, the story said.
