The Monetary Authority of Singapore (MAS) kept its neutral policy stance for the Singapore dollar at its semiannual monetary policy review on Friday (14 October).
According to the policy statement posted on its website, the central bank will maintain the rate of appreciation of the Singapore’s dollar’s nominal effective exchange rate (S$NEER) policy band at zero percent, and that there will be no change to the width of the band at which it is centred.
MAS said this is in line with the “more modest outlook for economic growth in 2016, as well as the expectation that MAS Core Inflation would average slightly below two percent in the medium term.”
“MAS assesses that a neutral policy stance will be needed for an extended period to ensure medium-term price stability. The current policy band provides some flexibility for the S$NEER to accommodate the near-term weakness in inflation and growth,” it said.
Following the announcement, the Singapore dollar weakened against the greenback, falling 0.5 percent to S$1.3877 against the US dollar as of 11:20 a.m. local time, Bloomberg reported.
In addition, advanced estimates released by the Ministry of Trade and Industry on Friday showed that the Singapore economy contracted by 4.1percent on a quarter-on-quarter in Q3.
The government enforces the monetary policy by managing the exchange rate of the Singapore dollars against an undisclosed basket of major currencies. The exchange rate is allowed to float within a policy band of which MAS can tweak when it reviews monetary policy twice every year.
In April, MAS flattened the S$NEER slope to zero percent in line with forecasts that the increase in core inflation “will be milder than earlier expected, on account of a downward revision in the outlook for global oil prices, a reduction in labour market tightness, and weaker consumer sentiment.”
Meanwhile, iCompareLoan chief mortgage consultant Paul Ho expected the neutral S$NEER stance to affect movements of the Singapore Interbank Offered Rate (SIBOR).
“A neutral S$NEER policy stance would likely lead to a slight increase in SIBOR rates as a result of a stronger US Dollar when the Federal Reserve imposes rate hikes.”
Looking ahead, the MAS said the economy is projected to grow at a slower pace in 2016 than envisaged in the April policy review. It added that the GDP growth is “not expected to pick up significantly in 2017, reflecting weak global demand and the cyclical as well as structural factors weighing on Singapore’s exports.”
MAS also expects core inflation to “rise modestly from around 1 percent this year to average 1 to 2 percent in 2017, amid emerging slack in the labour market and generally subdued consumer sentiment.”
Nikki Diane De Guzman, Editor at CommercialGuru, wrote this story. To contact her about this or other stories email nikki@propertyguru.com.sg
