SINGAPORE: The Monetary Authority of Singapore (MAS) on Wednesday (Oct 14) kept its exchange rate-based monetary policy unchanged after two consecutive rounds of easing, in line with market expectations.
In its half-yearly monetary policy statement, the Singapore central bank said it will “maintain a zero per cent per annum rate of appreciation of the policy band”.
There are no changes to the width of the policy band and the level at which it is centred.
All 13 economists polled by Reuters had predicted that the central bank would stand pat on its monetary settings.
The MAS said that the Singapore economy is expected to see a recovery next year, alongside receding disinflation risk. But underlying growth momentum will be “weak” and the “negative output gap will only narrow slowly in the year ahead”.
READ: Singapore’s third-quarter GDP shrinks at slower pace of 7% after economy gradually reopens following circuit breaker
It added that core inflation will rise gradually and turn positive in 2021, but is set to remain well below its long-term average.
“As core inflation is expected to stay low, MAS assesses that an accommodative policy stance will remain appropriate for some time,” it said in its policy statement.
“This will complement fiscal policy efforts to mitigate the economic impact of COVID-19 and ensure price stability over the medium term.”
Unlike most central banks that manage monetary policy through the interest rate, the MAS uses the exchange rate as its main policy tool.
This refers to the S$NEER – the exchange rate of the Singapore dollar managed against a trade-weighted basket of currencies from Singapore’s major trading partners.
The S$NEER is allowed to float within an unspecified band. Should it go out of this band, the MAS steps in by buying or selling Singapore dollars.
The central bank also changes the slope, width and mid-point of this band when it wants to adjust the pace of appreciation or depreciation of the local currency based on assessed risks to Singapore’s growth and inflation.
The MAS reduced the pace of the Singapore dollar’s appreciation “slightly” in October last year, as growth slowed on the back of trade tensions.
In March, it followed up with another easing move by further reducing the slope of its currency band to zero and re-centering the band downwards.
It said then that fiscal policy played the “primary role” of mitigating the economic impact of COVID-19.
So far, the Singapore Government has pumped in nearly S$100 billion worth of stimulus and emergency relief measures to blunt the impact of the pandemic.
Separate preliminary data released on Wednesday morning showed the economy shrank at a slower pace of 7 per cent year-on-year in the third quarter, compared with the 13.3 per cent plunge in the second quarter.
The improved performance in the third quarter came as Singapore gradually reopened its economy following the COVID-19 “circuit breaker” that was implemented between Apr 7 and Jun 1, said the Ministry of Trade and Industry (MTI).
MTI said in August, in another revision to its outlook, that the economy is expected to shrink between 5 per cent and 7 per cent this year.
“Singapore’s GDP picked up in Q3 2020 after its sharp contraction in the previous quarter,” said MAS on Wednesday.
“However, beyond the immediate rebound, GDP growth momentum is likely to be modest against a sluggish external backdrop, persistent weakness in some domestic services and limited recovery in the travel-related sector.
“Nevertheless, barring a renewed worsening of the course of the COVID-19 pandemic, the Singapore economy is expected to expand in 2021, following the recession this year.”
Published at Wed, 14 Oct 2020 00:46:10 +0000