MAS eases monetary policy ‘slightly' amidst subdued economic growth

There will be no change to the width of the policy band and the level at which it is centred.

The Monetary Authority of Singapore (MAS) reduced the rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band, announced on its latest policy review.

There will be no change to the width of the policy band and the level at which it is centred, added MAS.

Also read: Will Singapore ease monetary policy amidst subdued inflation levels?

The adjustment comes after an observed fluctuation of the S$NEER over the last six months, as well as Singapore’s moderate economic growth. 

“Over the last six months, the S$NEER has fluctuated within the upper half of the policy band, reflecting shifts in global risk sentiment and capital inflows into Singapore. The three-month S$ SIBOR edged up from 1.9% in end-April 2019 to 2.0% in end-June, before falling back to 1.9% in August, where it has remained as at end-September,” the review read.

Singapore’s economy has slowed over the first three quarters of the year, growing by 0.1% YoY in Q3 according to advanced estimates revealed by the Ministry of Trade and Industry. The manufacturing sector dragged down the GDP after a vicious whiplash of the trade war, offset by activity in the expanding services sector.

Also read: Technical recession risk heightens in Q3 amidst slowing economic growth

“Growth had eased more significantly in Q2 2019 as the cumulative effect of the tariffs and elevated policy uncertainty took a heavier toll on manufacturing and trade. Against this global backdrop, the weakness in electronics production and its supporting industries in Singapore is likely to persist over the near term. At the same time, the finance & insurance and information & communications services sectors should continue to expand, underpinned by domestic demand in the region and ongoing digitalisation-related investments,” said MAS.

Despite these weaknesses MAS expects the economy’s growth to pick up in 2020. Core inflation has also come in lower than anticipated in recent months, and will remain subdued in the year ahead, MAS added.

“Singapore’s GDP growth should pick up modestly in 2020, but the level of output will remain below potential. Consequently, inflationary pressures should be muted. MAS Core Inflation is likely to remain below its historical average over the next few quarters before rising gradually over the medium term,” the review noted.

MAS expects core inflation to come in at the lower end of the 1–2% range in 2019. Meanwhile, CPI-All Items inflation is projected to be around 0.5% this year and average 0.5–1.5% in 2020.