MAS eases monetary policy as economy heads towards recession

The regulator has adopted a neutral rate of appreciation.

The Monetary Authority of Singapore (MAS) has adopted a zero percent per annum rate of appreciation policy band as the country braces for a recession. There will be no change to the width of the policy band.

Advanced estimates from the Ministry of Trade and Industry showed that the economy contracted 2.2% YoY in Q1 2020 from a 1% YoY expansion the previous quarter. Singapore is expected to enter a recession this year, with GDP growth expected to fall between -1% to -4%.

With the deterioration in macroeconomic conditions and expectations of a weaker outlook, the S$NEER has depreciated to a level slightly below the mid-point of the policy band, according to MAS. 

“The Singapore economy will contract this year. GDP growth will eventually recover following the abrupt downshift in the level of activity, but there is significant uncertainty over the depth and duration of this recession. MAS core inflation is likely to remain below its historical average in the near and medium term,” the latest policy statement read.

MAS Core Inflation and CPI-All Items inflation are expected to average between −1 and 0% in 2020. MAS core inflation averaged 0.1% YoY in January-February 2020 compared to 0.6% YoY in H2 2019, partly blamed to the decline of retail goods prices, as well as government measures to reduce the costs of pre-school education and healthcare.

External sources of inflation are likely to weaken in the near term amid the global downturn, according to MAS, but supply chain disruptions across the globe may push food prices to rise.

Rental prices are expected to be broadly flat as demand for accommodation eases in tandem with the reduced arrival of foreign workers. Similarly, car prices are expected to be largely unchanged as households hold back on expenditure that require large financial outlays, said MAS.

The three-month S$SIBOR also fell from 1.8% in October 2019 to around 1.0% as at late March, following the decline in the US$LIBOR during this period.