The Monetary Authority of Singapore (MAS) also raised its end-2023 forecast for core inflation to 2.5 to 3 per cent, up from an estimate of around 2.5 per cent made in April.

The MAS recorded its largest net loss of SGD 30.8 billion (USD 22.8 billion) in the 2022-2023 financial year mainly due to its aggressive monetary policy tightening to bring down inflation, which paved the way for a “broad appreciation” of the Singapore dollar against other currencies, including US dollar, euro and yen.

As MAS’ financial results are reported in the Sing dollar, it saw “significant” negative currency translation effects of about SGD 21.4 billion, or 70 per cent of the annual net loss, Menon said.

The loss widened significantly as compared to SGD 7.4 billion in the year before that, reported Channel News Asia, pointing out that the official foreign reserves were held in USD, Euro and yen.

Talking to reporters at a press conference, Menon stressed that this will not affect the government’s ability to spend up to 50 per cent of the expected long-term investment returns generated by MAS, GIC and Temasek – the three entities tasked to manage the reserves.

MAS also incurred higher interest expenses of SGD 9 billion as part of mopping up excess liquidity in the banking system, he added at the release of the central bank’s annual report and sustainability report.

These two factors outweighed the “small” investment gain of SGD 0.6 billion that the MAS made on the country’s official foreign reserves.

This weak investment performance, down from SGD 4 billion in the year before, comes amid a challenging market where both bonds and equities have performed poorly, it said.

Indian-origin Menon said the large annual loss is “not a cause for concern”, adding that the negative currency translation effects do not affect the external purchasing power of the official foreign reserves.

They also do not affect MAS’ ability to conduct monetary policy or support financial stability.

“In fact, in 10 out of the last 15 financial years, MAS recorded negative currency translation effects. Not surprising given that the Singapore dollar has generally been strengthening against other currencies,” he told reporters at a press conference.

However, it “does not make sense” to try to hedge against negative currency translation effects.

If MAS wanted to do so, it would have to sell US dollars from the official foreign reserves to buy Sing dollars, said Menon.

This will negate other interventions by the MAS in the foreign exchange market and will cause the Sing dollar to appreciate much more, thereby harming the economy and depleting the official foreign reserves, he explained.

The loss also does not result in a draw on MAS’ past reserves, with the official foreign reserve position remaining “very healthy”.

That said, MAS’ investment performance is likely to stay weak in the next two to three years amid a challenging macroeconomic and financial market environment, said Menon.

This means that a return to profitability, and in turn the ability to contribute to the government’s consolidated fund, “will take time”, he added.

“We will need to generate future profits exceeding the cumulative losses in the latest two financial years of SGD 38.2 billion before we can resume contributions to the consolidated fund,” the Channel quoted the central bank chief as saying.

Meanwhile, as a “conservative measure” to ensure it remains well-capitalised relative to its assets, MAS said it increased its issued and paid-up capital by SGD 25 billion to SGD 50 billion in the financial year.

As of March 31, the total capital and reserves of MAS were at SGD 34.3 billion. Menon further said that the central bank is “not switching from inflation-fighting mode to growth-supporting mode”.

“We are closely monitoring the evolving growth (and) inflation dynamics and remain vigilant to risks on either side, and we stand ready to adjust monetary policy as needed, especially if inflation momentum were to be accelerated,” he said.

MAS had re-appointed Indian-origin Menon as its Managing Director for a further term of two years to serve until May 31, 2025, or his retirement from the Singapore Public Service, whichever is earlier.

Menon, 59, has been at the helm of the central bank since 2011. In his 12 years as MAS chief, Menon helped steer Singapore’s economy through the post-global financial crisis era.