MAS to ease further in April to combat back-to-back growth threats: report

The exchange rate will be re-centered lower.

Singapore’s central bank is going to devalue the city-state’s currency at its upcoming monetary policy meeting in April, according to a report by BMI Research.

The Monetary Authority of Singapore (MAS) will re-center the currency’s nominal effective exchange rate band lower, in order to combat consistent consumer price deflation, poor export growth, falling industrial production, and middling economic growth.

“We believe that the MAS is most likely to opt for a re-centering of the currency's band downwards, which will be tantamount to a one-off depreciation versus its trade-weighted peers,” BMI Research said. 

A policy easing will be driven by the fact that consumer prices in the city-state have been mired in deflation for 14 straight months, while core inflation is barely in positive territory.

“Following the recent leg down in oil prices, the potential for consumer prices to remain in deflation for a second straight year is much higher than it was just two months ago, a consideration that will likely factor in the MAS's decision making process,” the report noted.

But inflation--or the lack of it--will not be the only factor at play. The MAS will also consider the fact that Singapore’s exports have lost their competitiveness over the past two years, with the manufacturing sector stuck in recession for several quarters.

“Singapore's economy has lost considerable momentum over the past two years following a collapse in external demand, and this situation is unlikely to right itself in the near future as the Chinese economy experiences a more significant slowdown over the course of the next two years,” the report noted.