Monetary policy implementation in Singapore

• Main Authors: CHOW-TAN, Hwee Kwan, WONG, Fot Chyi
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2020
• Subjects: Asian Studies; Economic Policy; Macroeconomics
• Online Access: https://ink.library.smu.edu.sg/soe_research/2405
• Institution: Singapore Management University

Singapore’s monetary policy is centred on the management of the Singapore dollar exchange rate against a trade-weighted basket of currencies of its major trading partners. The Monetary Authority of Singapore (MAS) manages the Singapore dollar exchange rate within an undisclosed band by intervening in the foreign exchange market as necessary through the purchase and sale of the Singapore dollar against the US dollar. In the context of a small open economy, the choice of the exchange rate as an instrument of monetary policy implies that the domestic interest rate is endogenous. As such, MAS’ money-market operations are aimed at ensuring adequate liquidity in the banking system to meet the demand of banks for reserves both for the statutory reserve requirement as well as for the settlement of interbank transactions. Given Singapore’s status as an international financial centre and the attendant high degree of capital mobility, monetary policy operations in Singapore—involving foreign exchange interventions and money-market operations—are not without their challenges. This chapter discusses the key features in the market mechanisms and operating procedures that enhance the effective implementation of monetary policy operations in Singapore.