Singapore eases monetary policy on the back of regional weakness

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The Monetary Authority of Singapore (MAS) tweaked the policy settings at its semi-annual meeting today, reducing the rate of appreciation of the Singaporean dollar $NEER band.

“MAS will continue with the policy of a modest and gradual appreciation of the S$NEER policy band. However, the rate of appreciation will be reduced slightly,” the MAS said in its statement.

“There will be no change to the width of the policy band and the level at which it is centred. This measured adjustment follows the move to reduce the rate of appreciation of the policy band in January this year, and is supportive of economic growth into 2016, while ensuring price stability over the medium term”.

The NEER is the nominal effective exchange rate, the unadjusted, weighted average value of a country’s currency relative to all major currencies being traded within an index or pool of currencies. The weights are determined by the importance a home country places on all other currencies traded within the pool, as measured by the balance of trade according to Investopedia.

On the growth outlook, the MAS forecast that GDP growth in Singapore is likely to come in at around 2–2.5% in 2015, with “risks tilted towards the downside.” Looking further ahead, they expect the economy to expand at a broadly similar pace to that of 2015, with “cyclical headwinds likely to persist into early 2016.”

They also touched on recent economic weakness from China, noting that the nation’s growth momentum has eased on a sharp deceleration in investment growth. Coupled with weak import demand from the US and a “gradual” pickup in economic activity in the eurozone and Japan, they state “As a consequence, the growth outlook for Asia ex-Japan as a whole has dimmed.”

On inflation the authority forecasts that core inflation will rise gradually next year “towards its historical average of close to 2%”.

“For the year as a whole, MAS Core Inflation is projected to average 0.5–1.5% in 2016, compared to around 0.5% in 2015,” they wrote.

Despite the decision to ease policy at its meeting, it appears that the announcement undershot market expectations with the Singapore dollar rallying against the US dollar in the minutes following the release.

The full MAS policy statement can be accessed here.

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