Singapore’s monetary framework departs from the interest-rate centric model common in many economies. Instead of steering short-term domestic interest rates, the Monetary Authority of Singapore (MAS) targets the Singapore dollar nominal effective exchange rate, known as the S$NEER, as its main policy tool. By setting and adjusting a policy band for the S$NEER, the MAS seeks to influence domestic price pressures by managing the currency’s collective performance against the currencies of Singapore’s principal trading partners.
Why the exchange rate matters more than interest rates
The design of Singapore’s policy framework reflects the economy’s scale and openness. Gross exports plus imports of goods and services exceed three times Singapore’s gross domestic product, and nearly 40 cents of every Singapore dollar spent within the economy goes toward imported goods and services. Because imported prices have such a large weight in overall domestic spending, movements in the exchange rate have a more direct and powerful effect on inflation than changes in local interest rates. When the Singapore dollar appreciates against the currencies of its major trading partners, the cost of imported goods and services is reduced, which in turn eases the price burden on households.
What the S$NEER represents
The S$NEER is a trade-weighted index that captures the Singapore dollar’s value relative to the currencies of the island’s main trading partners. By focusing on a basket rather than bilateral rates, the MAS aims for a collective performance that aligns with what matters for general price levels in Singapore. The central bank does not fix the exchange rate to a specific number in real time; rather, it allows the S$NEER to move within a policy band whose exact numerical boundaries are not publicly disclosed.
How the policy band operates
MAS permits the S$NEER to fluctuate within the policy band and intervenes only if the index moves outside that band, at which point the central bank steps into foreign exchange markets by buying or selling Singapore dollars. The policy band itself is defined by three adjustable parameters: the slope, the level, and the width. Altering the slope modifies the intended pace at which the Singapore dollar should strengthen or weaken. Changing the level - effectively shifting the band’s midpoint - can produce an immediate revaluation or devaluation of the S$NEER and is reserved for substantial economic developments, such as a sharp downturn. Expanding the width of the band permits greater S$NEER volatility by giving the exchange rate more room to move before intervention is triggered.
Policy review cadence and recent adjustments
Historically, the three policy parameters were reviewed at least twice annually, typically in April and October. The central bank has the flexibility to hold additional reviews when conditions warrant, as it did in 2022 when elevated inflation prompted two off-cycle adjustments. Beginning in 2024, MAS moved to quarterly monetary policy announcements. MAS said the change allows policymakers to share their assessment of the economic outlook more frequently, giving markets a more regular read on policy stance.
Operational implications
Because the exact levels of the band are not disclosed, market participants observe MAS actions and commentary to infer policy intent and stance. Intervention occurs through transactions that alter the supply and demand for Singapore dollars, thereby nudging the S$NEER back toward the policy band parameters when necessary. The three levers provide MAS a toolkit to calibrate both gradual and abrupt adjustments to the S$NEER depending on economic conditions and price stability objectives.