The Monetary Authority of Singapore (MAS) made the announcement today that it would be transferring SGD45 billion from the official foreign reserves (OFR) to the Government for longer-term investment. In addition to this, it will also start releasing more information on its exchange rate-based monetary policy operations this year.
MAS, as the central bank of Singapore, manages the country’s OFR, which stood at SGD404 billion as of April 2019.
“MAS will transfer SGD45 billion to the Government for management by GIC, so as to be invested on a longer-term basis with expected higher returns. The transfer will take place in May 2019,” said MAS in a press release issued today.
Singapore’s monetary policy is aimed at ensuring medium-term price stability. Given the dominant role that the exchange rate plays in determining core inflation in Singapore, MAS conducts monetary policy by managing the exchange rate of the Singapore Dollar. MAS does this through market intervention operations to keep the nominal effective exchange rate of the Singapore Dollar within a policy band consistent with ensuring price stability.
Notably, OFR plays an important role in MAS’ conduct of monetary policy. The OFR enables MAS to defend the stability of the Singapore dollar during times of speculative pressures or financial crises.
The stock of OFR has grown steadily over the years. As a proportion of GDP, OFR amounted to 82 per cent as at Q1 2019. MAS periodically assesses the size of OFR that is necessary for supporting the conduct of monetary policy and financial stability. In its latest review, MAS assessed that it should maintain OFR amounting to at least 65% of GDP on an ongoing basis. This level of OFR will provide a sufficiently strong buffer against stresses in the global economy and markets, and underpin confidence in Singapore’s exchange rate-centred monetary policy. Accordingly, the current level of OFR is in excess of that required by MAS.
Further, MAS has also decided to disclose further information on its monetary policy operations, without compromising their effectiveness.
In this connection, it will release data on its foreign exchange intervention operations, which are integral to its management of the Singapore dollar.
The data will comprise MAS’ net purchases of foreign exchange on a six-month aggregated basis, and with a six-month lag from the end of the period. The data will be released on a six-monthly basis, beginning with the data for the second half of 2019.
This further disclosure initiative will provide market participants with a better indication of the actions that MAS has undertaken to implement its monetary policy stance while preserving MAS’ operational effectiveness.
“MAS foreign exchange intervention operations will remain focused on keeping the Singapore dollar within its policy band, so as to keep inflation low over the medium term,” said the release.