Two birds with one stone: MAS clears up policy easing decision

The central bank laid out a two-fold explanation.

After more clamor to ease its monetary policy to counter the economic slowdown, the Monetary Association of Singapore finally announced last October 14 that it would be slightly reducing the slope of its S$NEER policy band after the city-state narrowly dodged a technical recession.

However, some analysts declared that this move was too soft to make a significant difference.

According to the latest edition of MAS’ bi-annual macroeconomic review, the purpose for the easing is to anchor Singapore’s economic growth into 2016 while ensuring price stability over the medium term.

“Overall, the macroeconomic policy mix—a continuation of the modest and gradual appreciation path for the exchange rate policy band and a moderately expansionary fiscal policy stance—is assessed to be appropriate, given the expected growth and inflation dynamics in the economy,” the review said.

MAS also defended its policy stance, saying that a stronger easing and flattening the slope of the policy band is excessive and unwarranted, as Singapore’s economy was “neither experiencing an outright retraction in economic activity nor widespread price declines.”

“Under the current policy setting, the output gap is projected to close in 2015–16, compared to the positive outturns over the preceding five years, before widening again to slightly above zero in 2017. The calibrated October move will keep the level of real GDP close to its potential over the medium term and thus help to promote price stability,” the MAS said.

MAS said the middle path between maintaining the status quo and adopting an even looser policy stance would also help quell macroeconomic volatility.

“The measured policy move in October will therefore lead to comparatively more favourable growth and inflation outcomes for the Singapore economy,” the review said.