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Strengthen Singapore dollar, raise CPF interest rates temporarily to address rising cost of living: WP’s Jamus Lim


SINGAPORE: With rising prices shaping up to be “a cost-of-living crisis”, the Government can do more in terms of macroeconomic policy such as by allowing a stronger Singapore dollar or having a “temporary” increase in the Central Provident Fund’s (CPF) interest rates, said Member of Parliament Jamus Lim (WP-Sengkang) in Parliament on Tuesday (Jul 5).

Citing increases in the prices of food and fuel here since the start of the year, Associate Professor Lim said in an adjournment motion: “When the prices of what we eat, getting to work and keeping our homes and businesses running are all rising rapidly, this isn’t an inflation problem any longer.

“It is a cost-of-living crisis. It is therefore incumbent on policymakers to do what they can to alleviate the pain felt by the people.”

In response, Minister of State for Trade and Industry Alvin Tan said that the Government plans and executes long-term strategies to grow the economy and pull in investments, while maintaining “the dexterity to zoom into the details that matter on the ground”.

He also reiterated a point made by Deputy Prime Minister Lawrence Wong that the Government is “prepared to do more” if the economic situation worsens significantly.


Assoc Prof Lim said more can be done to strengthen the Singapore dollar, which will help reduce the costs of imported goods and services and in turn, domestic inflation.

While the Monetary Authority of Singapore (MAS) has tightened monetary policy three times since October last year, it is “unclear how much this effort to strengthen the Singdollar has succeeded”, he added, noting that only the most recent policy announcement was “sufficiently aggressive”.

The central bank made a two-in-one move back in April, by raising the slope and re-centering the mid-point of its exchange-rate based policy band. Prior to that, the MAS steepened the slope to allow the Singdollar to appreciate faster – first in October last year, followed by an off-cycle move in January.

Since the MAS first tightened monetary policy on Oct 14, the Singdollar has weakened by nearly 4 per cent to trade at 1.40 per US dollar as of mid-June, said Assoc Prof Lim. While an “exceptionally strong” US dollar may be one of the many reasons involved, he noted that efforts by MAS are “demonstrably, too tentative”.

“And what’s worse, we risk falling behind the curve even further as the Federal Reserve recently moved to hike interest rates more aggressively, which will fuel further appreciation of the US dollar unless we act more aggressively ourselves,” the opposition MP added.

While currency appreciation may raise concerns about the impact on exports, Assoc Prof Lim reasoned that the economy is now less reliant on manufacturing. Several of the country’s tradable services also have pricing power and are resilient to exchange rate fluctuations.

Assoc Prof Lim also made the case for a stronger currency by noting that it will not affect capital inflows, as multinationals based here can manage foreign exchange risk through hedging. Local firms may also be spurred to upgrade their operations to reflect higher productivity and quality, instead of competing on low prices and cost-cutting, he added.

In response, Mr Tan said tightening moves by the MAS has thus far strengthened the exchange rate by at least 5 per cent on an annualised basis.

This has helped to dampen imported inflation from rising global food and energy prices.

For example, global food commodity prices have surged by an average of 25.4 per cent year-on-year over the first five months of 2022. In comparison, domestic food prices rose by 3.6 per cent year-on-year over the same period, he said.

While global energy prices increased by 27.5 per cent between January and May, energy-related components in Singapore’s consumer price index went up by 13.6 per cent year-on-year over the five months, he added.

Mr Tan said the MAS considers many factors when deciding on tightening monetary policy. One of which is how “a strengthening exchange rate cannot fully offset global prices, without causing immediate negative consequences on growth, and therefore the labour market”.

This is why many central banks are “guarded” in the speed and the extent to which they will raise interest rates, he added, noting that monetary policy action in itself has “attendant spillover effects” that must be taken into account amid the uncertain and challenging economic environment.

“Therefore, a judicious blend of tight monetary policy and targeted, supportive fiscal policies (which are) carefully calibrated is most appropriate,” Mr Tan told the House.



Assoc Prof Lim also raised the need for fiscal policy measures, to which he highlighted three principles – timely, targeted and temporary support; increased Government revenues being channelled back to people; and avoiding the temptation to index economy-wide wages to inflation.

More can be done on top of the S$1.5 billion support package announced last month, he added, citing how the Government’s revenue for fiscal year 2021 (FY2021) was S$74.8 billion, up S$13.4 billion from FY2020.

“The jump in property stamp duty alone was S$6.8 billion, even as personal and corporate income taxes have fully recovered. Yet, the announced package only amounts to S$1.5 billion, a fraction of this revenue increase,” said the opposition MP.

To help those in need, Assoc Prof Lim called for policies involving Singaporeans on fixed income streams to be adjusted, noting that the impact of inflation for these groups, such as retirees, can be “devastating”.

“For retirees, CPF returns have remained unchanged thus far, even as higher prices mean that whatever these retirees have set aside in saving will now buy less,” he said, as he suggested a temporary increase in CPF interest rates of around 2 percentage points for a six-month period, which will be consistent with the rise in inflation.

“This can be funded by the returns paid on Special Singapore Government Securities (SSGS). The higher returns on SSGS can, in turn, be made up from higher nominal returns that would accrue from financial assets that are marked to market,” he added.

Adjustments can also be made to ComCare, which provides short- to medium-term financial aid for low-income individuals and families in need, as well as long-term financial aid for the destitute who are permanently unable to work and have little or no family support.

Assoc Prof Lim noted that while the recent announced increase for long-term assistance under the initiative is welcomed, “it is unclear why a comparable degree of support is not extended for short- and medium-term assistance”.

“I believe that ComCare assistance should be permanently and universally increased by a margin that reflects the excess inflation experienced by families for this year,” he said.

The Workers' Party MP also mooted the idea of the central bank influencing the interest rates for Government bonds maturing 10 years or longer.

“Whether via (quantitative tightening) or other means, it strikes me as eminently reasonable that MAS attempts to elevate such long rates, so that the real interest rate … would no longer be negative, as it currently is,” he said.

“This would represent a genuine tightening of monetary conditions, which is what is necessary to contain inflation.”



Mr Tan, in response to the point about rebating fiscal upsides, said the Government has done so with the latest S$1.5 billion support package.

He further elaborated that the Budget measures in 2020 and 2021, along with monetary policy moves, supported Singapore’s gross domestic product growth by about one percentage point last year, while knocking off 4 percentage points from the unemployment rate.

The current round of combined fiscal and monetary policy responses is expected to “contain medium- term inflation, without significant loss of output or inadvertently adding further to the underlying tightness in the economy”, he added.

On ensuring financial aid can keep up with inflation, Mr Tan noted that the Government regularly reviews its schemes to take into account needs and affordability, with inflation being one of the many factors taken into consideration.

Overall, the Government takes a “macro and micro” approach when it comes to tackling the issue of rising cost of living.

The former involves long-term planning to ensure a stable macroeconomic environment, in building trade links with the world via free trade agreements and diversifying Singapore’s sources of imports and exports, as well as staying open to innovation, investments and talent.

Meanwhile, policymakers continue to “keep an eye firmly on what’s happening on the ground”, said Mr Tan, citing the S$100 billion in support measures announced over the past two years to tide businesses and households through the COVID-19 pandemic.

More support was also announced in this year’s Budget in anticipation of higher prices, with the implementation of some of these measures, such as the S$100 worth of Community Development Council (CDC) vouchers, being brought forward.

Further, the latest S$1.5 billion relief package aims to provide immediate and targeted relief for lower-income and more vulnerable groups.

“Overall, we designed the package to avoid stoking further inflationary pressures and distorting price signals, while being, as the member suggested, fiscally responsible and sustainable,” Mr Tan said.

“And as (Deputy Prime Minster Lawrence Wong) said yesterday, if the situation worsens significantly, we will be prepared to do more.”

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