SINGAPORE – Singapore’s financial sector went from strength to strength, buoyed by broad-based growth but inflationary pressures, wobbly global growth and global tightening monetary policies have weighed on the central bank’s fiscal performance.

The Monetary Authority of Singapore (MAS) on Tuesday (July 19) announced at its annual review that it clocked a net loss of $7.4 billion for the financial year ended March 31, 2022 – the first time in nine years.

The loss came from lower investment gains, a large negative foreign exchange translation effect, and higher interest expenses.

As a result of the loss, MAS did not contribute to Singapore’s consolidated fund, out of which government expenditure is made, for the financial year. It had contributed $1.07 billion in fiscal 2021 and $2.17 billion in 2020.

MAS also said that as at end-March, Singapore’s official foreign reserves recorded a net loss of $4.7 billion as investment gains of $4 billion were more than offset by the strengthening of the Singapore dollar, which led to a negative foreign exchange translation effect of $8.7 billion.

The Singdollar strengthened 4 per cent against the British pound, 5 per cent against the euro, and 9 per cent against the Japanese yen, MAS noted.

The investment returns from Singapore’s reserves supplement its Budget spending. The Government can spend up to 50 per cent of the expected long-term investment returns generated by MAS, GIC and Temasek Holdings – the three entities tasked to manage the reserves.

MAS’ total expenditure for the year increased, to $2.8 billion, due mainly to higher interest expenses on domestic money market operations.

The central bank has been gradually tightening monetary policy since Oct 2021, as inflation continues to rise. A stronger exchange rate makes imports cheaper. It can also decrease Singapore’s exports, dampening economic growth. Both effects can also reduce the pressure to raise wages.

In July, MAS further tightened monetary policy in its second off-cycle move this year.

MAS managing director Ravi Menon said on Tuesday that core inflation is projected to increase to a peak of 4 per cent to 4.5 per cent in the third quarter this year before levelling off to 3.5 per cent to 4 per cent by year end, much higher than what Singapore is used to. Core inflation excludes housing rents and private transport costs.

“If there are fresh shocks to global energy and food supplies arising from the ongoing conflict in Ukraine or a significant overheating of the domestic labour market, inflation may end up being higher and more persistent,” he said.

Senior Minister and MAS chairman Tharman Shanmugaratnam said in the report that the central bank had tightened monetary policy four times since Oct 2021 to help ensure medium-term price stability, amid sustained growth in the economy.

“These moves should slow the inflation momentum but cannot fully mitigate the pass-through of higher global inflation, especially in food and energy prices.

“The domestic labour market is tight and some pickup in consumer services inflation is to be expected. However, MAS expects core inflation to stabilise by the latter part of the year,” he added.