Singapore’s central bank takes unprecedented easing action

SINGAPORE: Singapore’s central bank took unprecedented easing steps Monday to support an economy on track for its worst recession in years due to the rapid global spread of the coronavirus.

The Monetary Authority of Singapore, which uses the exchange rate as its main policy tool rather than a benchmark interest rate, recentered the currency band downwards and reduced the slope to zero. All 16 economists in a Bloomberg survey projected the MAS would take that dual action.

The Singapore dollar rose as much as 0.4% to 1.4216 against the US dollar following the MAS announcement.

The MAS, which has scheduled policy decisions twice a year, has never before taken those two steps at the same meeting. The unusually aggressive action follows emergency measures taken by several global central banks from New Zealand to the US to support their economies as the virus threatens to tip the world into recession.

Other details from the statement:

  • MAS core inflation and CPI-all items inflation are expected to average between −1 and 0% in 2020
  • GDP expected to contract 1% to 4% this year, which will result in substantial widening of the negative output gap

The MAS’ move comes days after Deputy Prime Minister Heng Swee Keat unveiled a second fiscal support package of S$48 billion for businesses and consumers, bringing the total stimulus delivered this year to about 11% of gross domestic product.​

“Their statement really re-emphasizes that it’s fiscal policy that’s doing the heavy lifting,” said Selena Ling, head of treasury research and strategy at Oversea-Chinese Banking Corp. The MAS’s action is “going to be complementary, and not the main driver for trying to head off some of the downside risks from Covid-19”.

​The MAS guides the local dollar against a basket of currencies and adjusts the pace of appreciation or depreciation by changing the slope, width and centre of the currency band. It doesn’t disclose details of the basket, the band or the pace of appreciation or depreciation.

The policy decision was brought forward from its typical April timing, and follows an easing in October.