CPI + 5.2%

[freedom]

SGD did depreciate by a huge percentage but that was planned by the government to increase our export's competitiveness. Growth and not inflation was the main concern then.

For Japan, Total GDP is USD5.85 trillion, Import is USD794 billion and export is USD800 billion.
For Singapore, Total GDP is USD251 billion, Import is USD310 billion and export is USD358 billion.

As seen from above figures, total trade is merely 25% of GDP for Japan whereas in Singapore total trade is 2.5-3 times our GDP. This is uniquely Singapore due to the lack of resources.

Interest rate policy works in 2 way through banks and bond market simultaneously. To curb inflation, interest rate will be raised.
For banks, the point is to restrict lending, by asking for higher reserve from bank or by lending to banks at higher rate. There will be higher deposits placed with banks sucking up part of the liquidity from savers.
For bond market, the point is to absorb the additional liquidity through bond. If I offer a 1 billion SGS bond today and they get fully subscribed, SGD 1 billion will be withdrawn from the economy and placed with the government. Bond market is neccessary to suck up the liquidity of the hot money.

Interest rate policy still can work without a bond market but it will be much less effective. One reason why SGS has not been as developed is the government always have budget surplus unlike other countries.

Having a high saving rate also means is it is less effective. For e.g. if currently, 40% of all money are saved in the bank. With a 100% rises in interest rate, maybe another 40% will get saved up in the bank as 20% are needed for spending. However if only 20% of all money are saved in the banks, it is more likely to get more money saved up in the bank of up to 80% given that 20% are needed for spending.

bank A has equity of 1m and debt of 19m while bank B has equity of 1m and debt of 17m. When the central bank raise the reserve ratio, both banks have to contribute 0.5m. Bank B is likely to continue its lending activity while Bank A will have to restrict its lending ability to meet the Basel requirement

pardon me, how does all above explain why exchange rate is a better monetary policy than interest rate for domestic liquidity?

yes, I agree. interest rate policy is not perfect and applied to everywhere, especially if used incorrectly. But I don't see how exchange rate is supposed to manage domestic liquidity better than interest rate.

or would I say why MAS does not use both to manage inflation rather than must choose one only? given that Singapore does not have a fix exchange rate, means it is free to have an independent interest rate based monetary policy.

or would I say, how MAS is supposed to use its exchange rate policy to stop domestic accumulated 'hot' money from injecting liquidity into market?