Singapore central bank eases policy as economy avoids recession
MAS is prepared to recalibrate monetary policy should prospect for inflation and growth weaken significantly.
SINGAPORE: Singapore eased monetary policy for the first time since 2016, seeking to shore up growth as the trade-reliant economy narrowly missed falling into recession.
The Monetary Authority of Singapore, which uses the exchange rate as its main policy tool, reduced “slightly the rate of appreciation” of the currency band, while keeping unchanged the width and the level at which it is centred.
“MAS will continue to closely monitor economic developments and is prepared to recalibrate monetary policy should prospects for inflation and growth weaken significantly,” the central bank said.
In a separate report, data showed gross domestic product rebounded from a contraction in the second quarter, gaining an annualized 0.6% in the third quarter from the previous three months.
That was lower than the 1.2% median estimate in a Bloomberg survey of economists.
Compared with a year ago, GDP rose 0.1%, unchanged from the second quarter.
“GDP numbers, despite skirting a technical recession, do not make for an upbeat read,” said Vishnu Varathan, head of economics and strategy in Singapore.
“The manufacturing recession continues. The outlook is at best hazy, if not gloomy.”
The Singapore dollar gained after the decision, rising 0.1% to S$1.3719 against the US currency as of 8.38am in Singapore.
The monetary policy decision was predicted by 14 of the 22 economists surveyed by Bloomberg, with the remainder projecting a more aggressive move to a zero slope.
The MAS held policy in April after tightening twice last year.
Singapore’s growth is expected to pick up gradually next year, “although this projection is subject to considerable uncertainty in the external environment,” the MAS said.
These are its latest projections for inflation and growth:
- GDP growth will likely be around the midpoint of 0-1% forecast range in 2019. The output gap has turned “slightly negative” and expected to persist into 2020
- Core inflation is expected to come in at the lower end of the 1-2% range in 2019 and average 0.5-1.5% in 2020
- All-items CPI is projected to be around 0.5% this year and average 0.5-1.5% in 2020
“We think the MAS’ core inflation forecast for 2020 suggests the door for further easing is open, if needed,” said Divya Devesh, head of Southeast and South Asia currency research at Standard Chartered Plc in Singapore.
The MAS guides the local dollar against a basket of its counterparts and adjusts the pace of its appreciation or depreciation by changing the slope, width and centre of a currency band.
It doesn’t disclose details of the basket, or the band or the pace of appreciation or depreciation.
Central bankers globally are taking a more dovish stance as US-China tensions weigh on growth and as manufacturing weakness threatens to spill over into services sectors.
In Singapore, authorities have taken a gradual approach as they monitor risks and keep a close watch on labour-market indicators that so far have stayed resilient.
“You’re still going to be skating on relatively thin ice” through year-end and into 2020, Selena Ling, head of treasury research and strategy at Oversea-Chinese Banking Corp in Singapore, said on Bloomberg Television.
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“In this current trade environment, there’s very, very little that monetary policy easing in itself can do to change the overall story.”