Asset returns from Singapore converted into other currencies look set to shift after the country said it would look to a stronger exchange rate to combat imported inflation, while foreign workers could find it easier to enter the jurisdiction.

The commitments were noted in remarks from Ravi Menon, managing director, Monetary Authority of Singapore (MAS) at the MAS Annual Report 2021/2022 Media Conference. 

Citing global drivers of inflation, such as food and fuel inflation, Menon noted that certain supply chain issues were already starting to appear in the past year, even before the Russian war on Ukraine ratcheted up inflation this year.

For 2021, Singapore's economy grew by some 7.6%, with core inflation to rise from some 0.2% in Q1 to 1.7% in Q4. Full employment returned amid ongoing recovery from the effects of the Covid pandemic, but also because some 15% of Singapore's non resident workforce has been lost since December 2019.

Wages of residents have risen by an average 6.2% year on year over the past three quarters. Import prices surged 27% in May this year compared to the same period last year, of which some 80% was due to higher oil and food prices.

"This step-up in energy and food prices has raised inflation for electricity and non-cooked food and is feeding into transportation and food services inflation.
The combination of domestic and external factors has led to a significant rise in inflation in Singapore.," Menon said.

Core inflation was at 3.6% in May, up from 3.3% in April, and 25% in the first quarter of this year. Measured by the CPI All Items index, inflation hit 5.6% in May. 

The core inflation rate could peak at 4-4.5% by the third quarter this year, he warned, taking the broader measure to 5-6%.

In response, MAS is set to support a stronger Singapore dollar.

"When inflationary pressures build up, MAS allows the trade-weighted exchange rate to appreciate faster."

"A stronger exchange rate helps to directly reduce imported inflation as well as restrain export demand, providing relief to labour market pressures."

Foreign workers

Another key plank in the response to inflation will be to encourage foreign workers into the labour market. 

Menon noted that: "The relaxation of our border restrictions and resumption of foreign worker inflows should help to moderate labour cost pressures; to prevent a further build-up in labour cost pressures, it is important that the inflow of non-resident workers continues unimpeded."