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Two of Asia’s most important trading nations stepped up the fight against inflation as the battle with Covid winds down. Like the spread of the virus, officials need to reckon with a certain inevitability: The pace of price increases will only accelerate, in the medium term. No matter the response, there will be economic costs.
The Monetary Authority of Singapore, which uses the exchange rate to steer the economy, tightened its stance in two significant ways: The central bank re-centered its policy band higher and raised the slope of appreciation — the first time since 2010 that both tools were rolled out simultaneously. The upshot is that the local dollar will be encouraged to strengthen, helping dampen the effect of imported price increases. (Singapore, a small island nation with a big maritime industry, imports a great deal of the goods sold on its shelves.)
The MAS also raised forecasts for price gains and suggested further tightening may be warranted. “Underlying inflationary pressures remain a risk over the medium term,†the statement said. The central bank cited pent up discretionary spending, and demand for labor that’s likely to push up wages. Officials hope an increase in foreign workers will ease at least some of the staffing shortfalls as Covid-era border restrictions loosen. “We should be able to clear the shortages within the next
few months,†Finance Minister Lawrence Wong told Parliament
in March.
Less than an hour after the MAS move, the Bank of Korea announced its fourth quarter-point increase in its benchmark interest rate since August. The decision, which surprised some economists, is the first without a governor at the helm. Rhee Chang-yong — the incoming chief, who still needs to clear a confirmation hearing — has made it clear he considers inflation a pressing concern.
It’s tempting to explain these developments as a couple more passengers joining a hawkish train that’s seen borrowing costs climb across the globe. Federal Reserve officials are contemplating a half-point hike, the Bank of Canada raised its main rate by 50 basis points, along with the Reserve Bank of New Zealand. Australia is likely to see an increase in coming months.
—Bloomberg