During covid

The year of 2021

Real Interest rate
MP curve

1.17%
%

Inflation rate
2.30%
[Figure no. 5]
In Singapore, Real interest rate in 2020 was 8.47% where the inflation level of the -0.18%, which
is known as deflation in the country. Now, the government had to face the problems of deflation.
Deflation causes the negative impact on:
Investment spending: Deflation discourages investment because it reduces the potential return
on investment. When prices decline, companies may postpone or cancel investment projects,
which can hinder capital formation, productivity growth, and long-term economic development.
Consumer spending: In a deflationary environment, consumers may delay purchases in
anticipation of further price decreases. This behavior can result in a decline in consumer
spending, a significant economic development driver. Reduced expenditure can further depress
demand, resulting in a decline in business activity and potentially aggravating the deflationary
spiral.
There are some other negative impacts such as increasing debt burden, wage and job market
pressures and so on. All the negative impact aggregately lowers the GDP value of the country.
The GDP data reflects the effect.
Year GDP value GDP growth
2019 $375.47B 1.10%
2020 $345.30B -4.14%
[Table no. 5]
The fears of decreasing GDP made the Monetary Authority of Singapore (MAS) achieve a
positive tolerable inflation. So, to achieve the target tolerable inflation, government decreased the
real interest rate in 2021, the real interest fell from 8.47% in 2020 to 1.17% in 2021. When the
Monetary Authority of Singapore (MAS) decreased the real interest rate, the inflationary
pressure started to begin. The inflationary pressure turned the deflation of 2020 into inflation of
2.30% of 2021, which is shown in the above graph. So, the motive of decreasing in the real
interest was achieved through positive inflation. At the same time, the impact fell on the GDP
value of the country. At the positive inflation, the GDP of the country went up from 2020 to
2021.
Year GDP value GDP growth
2020 $345.30B -4.14%
2021 $396.99B 7.61%
[Table no. 6]
Singapore’s Monetary policy impact: Lowering the real interest rate causes inflation to rise
and deflation to end, increasing the country's GDP from $345.30 billion in 2020 to $396.99
billion in 2021 and the GDP growth rate from -4.14% in 2020 to 7.61% in 2021.