SINGAPORE (Xinhua) – Monetary Authority of Singapore (MAS) announced yesterday that it would slightly reduce the rate of appreciation of the Singapore dollar’s nominal effective exchange rate (S$NEER) policy band, leaving the width of the policy band and the level at which it is centred unchanged.
This is the first time in over three years for Singapore’s central bank to ease monetary policy, according to local media.
The MAS said in its bi-annual monetary policy statement yesterday morning that the measured adjustment to the policy stance is consistent with medium-term price stability, given the current economic outlook.
Singapore’s Ministry of Trade and Industry announced also on Monday that the city-state’s economy grew by 0.1 percent year on year in the third quarter, similar to the preceding quarter.
The MAS noted in its statement that global economic growth was expected to slow discernibly in 2019, which could spill over into domestic demand in some of Singapore’s major trading partners in the quarters ahead.
“Against this global backdrop, the weakness in electronics production and its supporting industries in
Singapore is likely to persist over the near term,” said the MAS in the statement.
It added that some of Singapore’s services sectors, including the finance and insurance sector and the information and communications sector, should continue to expand, underpinned by domestic demand in the region and ongoing digitalisation-related investments.
Besides, the construction sector should also recover further in the year ahead, given the strong pipeline of public infrastructure projects, it said.
Thus, the authority forecasts that Singapore’s GDP growth will come in at around the mid-point of the 0-1 percent forecast range in 2019 and improve modestly in 2020.
It predicts that the MAS Core Inflation, which excludes the costs of accommodation and private road transport, will come in at the lower end of the 1-2 percent range in 2019, and average 0.5-1.5 percent in 2020. Meanwhile, Singapore’s CPI-All Items inflation is projected to be around 0.5 percent this year and average 0.5-1.5 percent in 2020.
Selena Ling, head of Treasury Research and Strategy of the OCBC Bank, said that the bank anticipated another anaemic GDP growth for the fourth quarter of this year, with the risk that full-year 2019 GDP growth might come in on the lower end of the official 0-1 percent year-on-year forecast.
As for next year, Ms Ling said that Singapore’s GDP growth could have a modest improvement to 1-2 percent year on year, but this was from a low base in 2019 and predicated on no further escalation in trade tensions and geopolitical hotspots.
She quoted the MAS statement as saying that the output gap had turned slightly negative and was expected to persist into 2020, which should keep inflationary pressures subdued.
In fact, MAS noted that the output level will remain “below potential” in 2020 and MAS was “prepared to recalibrate monetary policy should prospects for inflation and growth weakness significantly,” she said.
“This clearly illustrates that the current monetary policy easing to flatten the S$NEER slope is a calibrated move, given that currently there is no technical recession or full-year recession.”
The window remains open for another measured easing come April 2020 should Singapore’s output remain below potential, Ms Ling added.