Due to the small and open nature of the SG economy, SG uses the managed float exchange rate system. As SG has a small domestic demand relative to external demand, SG is reliant on external demand. As SG has a small factor endowment, SG is reliant on imported factor inputs. Together with SG's open-ness to trade flows, this causes SG's exports and imports to be high relative to GDP. Therefore, exchange rate policy is regarded by the Monetary Authority of Singapore (MAS) as the most effective policy instrument to achieve the macroeconomic goal of low inflation in SG.
To find out more about how MAS's monetary policy stance of a gradual and modest appreciation of SGD has helped achieve low inflation in SG, do join our economics tuition classes or consult our economics tutor Mr. Clive Foo at econsactually@gmail.com.
A good read of Monetary PolicyMaking can be found in the following link: