Monetary Authority of Singapore Leaves Policy Stance Unchanged

April 12, 2013

Singapore subordinates domestic interest rate policy to an exchange rate target corridor, which is reviews every April and October.  The latest semi-annual review concluded with no change in the slope or width of the policy band for the Singapore dollar’s nominal effective policy band (S$NEER).  The level at which the band is centered was likewise left unchanged.  This result matched the decision announced last October and was deemed “appropriate for containing inflationary pressures, anchoring inflation expectations, and facilitating the restructuring of the economy towards sustainable growth.”  Officials revised projected 2013 growth downward to a range of 1-3%.  Coincidentally, first-quarter national income accounts were reported today as well, and they showed a weaker-than-expected 1.4% annualized contraction of GDP from 4Q12 and a drop of 0.6% from the first quarter of 2012.  MAS’s review also revised projected inflation lower by a half percentage point to a range of 3-4% in 2013 with core CPI at 1.5-2.5%.

Prior to last October’s review, Singapore monetary policy had been tightened in April 2010, October 2010 and April 2011, eased in October 2011, but tightened again in April 2012.  Although that was the last time policy was changed, the present stance remains skewed toward mild restrain as its allows for gradual modest appreciation in the Singapore dollar.  Commenting on the currency’s performance since the October Review, today’s statement noted that

The S$NEER has continued to fluctuate in the upper half of the policy band over the last six months.  The broad-based decline in the Japanese yen led to upward pressure on the S$NEER, although a strengthening in the US dollar, due to speculation of an early exit from quantitative easing in the US and renewed uncertainty over the European debt crisis, resulted in bouts of domestic currency weakness.  With persistently low interest rates worldwide, the domestic three-month interbank rate has remained generally stable at 0.38% since December 2011.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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