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Time to rethink monetary policy: NMP Tan Su Shan
Nominated Member of Parliament Tan Su Shan on Wednesday called for a new approach to Singapore's monetary policy, particularly the use of the exchange rate to manage inflation.
Speaking on the second day of the Budget debate in Parliament, Tan, who is managing director and group head of wealth management at the Development Bank of Singapore, said although Singapore has historically used a strong exchange rate to combat inflation when driven by imported goods, most of its key trade partners do not suffer from the same problem.
Unlike Singapore, the U.S. and Japan use interest rates as their primary monetary policy tools.
"So surely we can't be importing inflation from them on the trade account," she said. "Our inflation is driven by asset price increases from the capital account, and this needs a different set of policy tools."
Tan also noted that Singapore's high inflation rates produce a "double-edged sword" effect -- on one hand raising asset prices, and hence creating wealth, but at the same time increasing the cost of living and of doing business.
"It erodes the incomes of the masses, who by and large, do not gain from asset inflation," she added, warning that continuing to maintain a tight monetary policy may allow for loose cash to enter Singapore's system, hence pushing up asset inflation even further.
At the same time, Tan cautioned that the country's existing income gap "could be potentially destabilising for our society", unless decisive action is taken to tackle it -- by way of the employment of available reserves and surpluses accumulated over the years.
"We have saved for a rainy day. This is the rainy day, because how we handle the transition of the next 10 years will make or break us," she said. "Doing a little more with our surpluses to achieve a redistributive agenda is not a bad thing."
Tan noted that a progressive tax rate and policies to redistribute wealth are all appropriate measures that have been adopted in the Budget.
"However, the main engine must be the government through targeted programs for health, transport and housing," she added.
