In a pre-emptive move, MAS further undertook a tightening of monetary policy in October 2007 and April 2008, even as there were heightened concerns over developments in the US economy. 7. Between April 2004 and June 2008, the $ appreciated by 12.2%. Against the $ the $ appreciated by 23.4%. The policy moves have had a clear restraining effect on CPI inflation. For example, while WTI oil prices in $ have increased by more than 70% from a year ago, domestic electricity tariffs and petrol prices rose by around 30% each. Similarly, while the IMF global food and beverage index has soared by 43% from a year ago, domestic food prices picked up by a more moderate 9%. The effects of our policy tightening will continue to restrain cost and price pressures going forward. 8. However, we cannot totally insulate ourselves from the increases in global food and oil prices. Hence, we must ensure that inflation expectations remain firmly anchored and that external price changes do not trigger second round effects. For monetary policy, our objective continues to be price stability over the medium-term. At the same time, other policy responses, as well as changes in household and business behaviour have been complementary toward this end. 9. MAS’ current monetary policy stance announced on 10 April 2008 remains appropriate given our assessment of current external economic developments. The next monetary policy statement will be released in October as scheduled. Financial stability 10.
Apart from oil, food prices are expected to remain elevated, even as the rate of increase moderates. 6. These external developments – higher oil prices, continued high prices of food, and inflationary pressures in our trading partners – have affected Singapore because of our openness and heavy dependence on imports. We are thus revising our CPI inflation forecast for this year to 6-7%, compared to the earlier estimate of 5-6%. Given the outcome in the first  BIS Review 94/2008  1  half of the year, the new forecast range implies that headline CPI inflation is expected to come down over the rest of the year. There are several reasons for this: •  First, the one-off impact of the GST hike will cease to affect headline inflation in July. •  Second, although global commodity prices are likely to remain high, any further price increases are expected to be milder, compared to the first half of the year. •  Third, there are early signs of an easing of domestic cost pressures as the economy slows and asset markets consolidate. The rate of increase in commercial rentals, for example, appears to have peaked. Recent employment surveys have also shown that employers have become more cautious about hiring, suggesting that the pressures on the labour market could ease. •  Fourth, MAS had pursued a policy of targeting an appreciation of the Singapore dollar nominal effective exchange rate $ since 2004.