Unchanged Monetary Policy in Singapore

October 14, 2016

Interest rate policy in Singapore is subordinated to an exchange rate target corridor, defined by the following three elements: the band’s width, midpoint and slope. The Monetary Authority of Singapore assesses the policy stance twice a year in April and October. Policy was loosened at both meetings of 2015 by flattening the upward slope of the permitted band of movement in the trade-weighted Singapore dollar. By doing that, there was less scope for the currency to appreciate. Then at the April 2016 meeting, not only was the target’s slope reduced again, it was cut all the way to zero, ending a modestly restrictive stance implicit in an appreciating exchange rate.

After reviewing policy this month, officials reaffirmed the now-neutral stance. The targeted currency band again has no upward or downward slope, and the band’s midpoint and width were also kept unchanged. More importantly, the statement released afterwards ” assesses that a neutral policy stance will be needed for an extended period to ensure medium-term price stability.” Economic growth has been less than envisaged at the time of the previous policy review and is now projected to be slower in the second half of 2016 than in the first half of the year and to average only around 1% for the year as a whole. Next year’s growth will be only slightly faster than this year’s, and inflation, although having bottomed, will only lie between 0.5% and 1.5% in 2017. Ergo, the current ” policy stance was assessed to be appropriate given the more modest outlook for economic growth in 2016 as well as the expectation that MAS Core Inflation would average slightly below 2% in the medium term.”

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.    



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