Singapore Central Bank Loosens Monetary Policy; Signals More Easing

A weaker currency which corresponds to an easing in monetary policy makes imports more expensive in Singdollar terms while boosting demand for tradable goods and services made here

A weaker currency which corresponds to an easing in monetary policy makes imports more expensive in Singdollar terms while boosting demand for tradable goods and services made here

The Monetary Authority of Singapore (MAS) said it will "reduce slightly" the slope of the band at which its currency is allowed to move, effectively allowing for a weaker dollar, as had been expected.

"MAS will continue to closely monitor economic developments and is prepared to recalibrate monetary policy should prospects for inflation and growth weaken significantly", it added.

Singapore eased monetary policy for the first time in over three years today as the US-China trade war bites, while the export-reliant economy narrowly avoided recession in the third quarter.

On a quarter-on-quarter seasonally-adjusted annualised basis, growth was 0.6 per cent, a turnaround from the previous quarter's 2.7 per cent contraction, thus dodging a technical recession.

"Against this global backdrop, the weakness in electronics production and its supporting industries in Singapore is likely to persist over the near term", said the MAS in the statement. It expects MAS core inflation to remain below its historical average over the next few quarters before rising gradually over the medium term. Meanwhile, Singapore's CPI-All Items inflation is projected to be around 0.5 percent this year and average 0.5-1.5 percent in 2020.

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The year-on-year growth of 0.1 per cent - the same as in the second quarter - was below what most economists expected. "The three-month S$ SIBOR edged up from 1.9% in end-April 2019 to 2.0% in end-June, before falling back to 1.9% in August, where it has remained as at end-September", the review read.

"Consequently, inflationary pressures should be muted", it added.

The Monetary Authority of Singapore (MAS) manages monetary policy through exchange rate settings, rather than through interest rates.

"This clearly illustrates that the current monetary policy easing to flatten the S$NEER slope is a calibrated move, given that now there is no technical recession or full-year recession".

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