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Singapore Eases Monetary Policy

Singapore Eases Monetary PolicySingapore Eases Monetary Policy

The Monetary Authority of Singapore surprised the market on Thursday by unexpectedly easing its monetary stance to neutral with the adoption of a 0% appreciation policy for its currency due to a stagnation in economy growth.

The announcement by MAS for zero appreciation of the Singapore dollar against a basket of undisclosed currencies sent it to a two-week low of 1.36 against the greenback at one point. Regional currencies such as the New Zealand dollar and the Indonesian rupiah were also weaker on the news, Asia Nikkei reported.

The benchmark Straits Times Index, however, rose 0.81% to close at 2,913.93 points, marking a 1.08% rise so far this year.

“It was definitely a surprise move, especially since Singapore has not entered a technical recession yet,” said HSBC Economist Joseph Incalcaterra. The ministry of trade and industry said on Thursday that Singapore’s gross domestic product for the January-March period likely remained flat from the preceding quarter. The year-on-year growth was 1.8%, lower than the 2.7% growth recorded in January-March 2015 but higher than that expected by analysts.

The shift in monetary policy reflects the central bank’s concerns about the country’s sluggish economy. The last time the MAS implemented a zero-percent appreciation policy was in October 2008 in the aftermath of the collapse of Lehman Brothers that precipitated the global financial crisis. But by April 2010, the economy had recovered enough for the central bank to revert to a tightening monetary stance.

“Subdued growth in Singapore’s major trading partners will continue to pose cyclical headwinds to the external-oriented sectors,” said MAS, adding that 2016 growth is projected “at a more modest pace” than envisaged six months ago. The low inflation rate from a slump in fuel prices also supported MAS’s monetary policy shift.

Financialtribune.com