Monetary Policy Eased in Singapore

October 15, 2019

Singapore’s monetary policy is reviewed by it Monetary Authority (MAS) semi-annually in April and October, and policy tool used is an allowed band for the trade-weighted Singapore dollar, rather than a domestic interest rate. Three-month Sibor is currently at 1.9%. The S-dollar’s policy band has three elements: a mid-point, the band’s width, and a prescribed slope of appreciation and/or depreciation over the coming six months. The band width and midpoint have not been changed for quite a while dating back at least to 2015.

The band’s upward slope was reduced at this month’s review. This represent’s a directional change in policy toward greater accommodation. Although there had been no change in the slope at the preview review in April, both policy meetings during 2018 had increased the slope of the targeted trading range of the Singapore dollar. At the three policy reviews prior to 2018, in contrast, the slope had been zero, implying a neutral policy, and the slope had been cut to zero percent in April 2016.

A statement released yesterday explaining the Monetary Authority of Singapore’s decision to slow down their currency’s rate of appreciation notes that total and core inflation have been lower than assumed this year and likely to stay subdued going forward. One problem is that the Singapore dollar has hovered in the top part of its trading band, thus dampening import price pressure. More importantly, growth slowed significantly. Real GDP expanded on-year by only 0.1% in both middle quarters of this year, which is the smallest rise since the second quarter of 2009, and officials expect full-2019 average growth to be less than 1.0%. Tariffs and elevated policy uncertainty are identified as continuing depressants that likely will keep the level of production in Singapore below its potential level. Political unrest in Hong Kong has probably been partly responsible for persistent capital inflows that underlie the Singapore dollar’s recent strength.  But flattening the slope of the Singapore dollar’s prescribed band, MAS officials signal that they intend to resist upward market forces on the currency more forcefully by not completely.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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