MAS rejects aggressive policy easing despite weak economic growth

It expects GDP growth, business costs, and consumer prices to stabilise.

Current macroeconomic policy mix is “appropriate given current economic conditions,” according to the latest biannual report of the Monetary Authority of Singapore (MAS).

MAS reduced the rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band from 14 October, which was decided after taking into account the fluctuations of the S$NEER over the last six months—driven by shifts in global risk sentiment and capital flows into Singapore—as well as Singapore’s moderate economic growth.

However, MAS noted that a more aggressive easing of policy is unwarranted given that GDP growth, business costs, and consumer prices are expected to stabilise rather than further decelerate. This is as long as there is an absence of additional shocks, and noted that the risks to growth, and hence inflation, are “tilted towards the downside.”

In the report, MAS highlighted the expected slowdown in Singapore’s trade-related sectors due to the ongoing regional trade tensions and a “disappointing” GDP growth as some of the factors considered in the macroeconomic policy.

“Whilst a slowdown in Singapore’s trade-related sectors was anticipated, the extent of the downshift in activity in the last six months turned out to be more severe than previously envisaged. In turn, GDP growth fell to a disappointing 0.1% YoY in Q2-Q3, from an average of 1.2% in the preceding two quarters,” stated MAS.

“In sum, the negative output gap and softening labour market conditions should keep inflationary pressures in the domestic economy muted in the coming quarters,” the report further noted. This measured adjustment to the policy stance is assessed to be consistent with medium-term price stability, given the current economic outlook.”

Despite these, MAS noted that the S$NEER remained firmly in the upper half of the policy band in the six months following the April 2019 Monetary Policy Statement (MPS).