Monetary Policy

The MAS manages the Singapore dollar (S$) exchange rate against a trade-weighted basket of currencies of Singapore's major trading partners and competitors. The composition of this basket is reviewed and revised periodically to take into account changes in Singapore's trade patterns. This trade-weighted exchange rate is maintained broadly within an undisclosed target band, and is allowed to appreciate or depreciate depending on factors such as the level of world inflation and domestic price pressures. MAS may also intervene in the foreign exchange market to prevent excessive fluctuations in the S$ exchange rate.

Monetary policy is reviewed on a semi-annual basis to ensure that it is consistent with economic fundamentals and market conditions, thereby ensuring low inflation for sustained economic growth over the medium term. The MAS publishes a semi-annual Monetary Policy Statement (MPS) in April and October which explains its assessment of Singapore's economic and inflationary conditions and outlook, and sets out its monetary policy stance for the following six months. Singapore's exchange rate-based monetary policy system and its experience since its adoption are reviewed in MAS' monograph on Singapore's Exchange Rate Policy.

In the context of Singapore's open capital account, the choice of the exchange rate as the focus of monetary policy would necessarily imply that domestic interest rates and money supply are endogenous. As such, MAS' money market operations are conducted mainly to ensure that sufficient liquidity is present in the banking system to meet banks' demand for reserve and settlement balances. The key aspects of MAS' monetary policy operations, viz. foreign exchange and money market operations, and the various factors and considerations underlying them, are discussed in MAS' monograph on Monetary Policy Operations in Singapore.