SINGAPORE: The Monetary Authority of Singapore (MAS) kept its exchange rate-based monetary policy unchanged at its semi-annual review on Thursday (Apr 13), in line with expectations.
In a statement, the central bank said it would maintain the rate of appreciation of the Singapore dollar nominal effective exchange rate (S$ NEER) policy band at zero per cent. The width of the policy band and the level at which it is centred will also be unchanged, it added.
“A neutral policy stance is appropriate for an extended period and should ensure medium-term price stability,” said MAS, reiterating a stance it first mentioned in its policy review last October.
Following the announcement, the Singapore dollar fluctuated between 1.3976 and 1.3956 against the US dollar.
The central bank noted that the Singapore economy will continue to expand at a “modest pace” this year while the MAS core inflation measure, which excludes accommodation and private road transport costs, will rise gradually on the back of higher global oil prices.
However, demand-driven inflationary pressures will likely be restrained, the statement added. Over the medium term, core inflation – a key policy consideration for the MAS – is expected to trend towards but average slightly below 2 per cent.
Given the “subdued outlook for growth and inflation”, its current neutral policy stance is “assessed to be appropriate”, MAS said.
MAS TO MAINTAIN NEUTRAL POLICY STANCE THIS YEAR: ANALYSTS
Analysts have largely expected the central bank, which manages the economy through the currency rather than setting interest rates, to maintain its current policy approach amid an uneven turnaround in the economy. The MAS allows the exchange rate to float within an unspecified policy band and changes the slope, width and centre of that band when it wants to adjust the pace of appreciation or depreciation of the Sing dollar.
Said Mizuho Bank’s senior economist Vishnu Varathan: “Despite a pick-up in manufacturing and exports, it has been uneven. As mentioned in its statement, it sees lingering lethargy in domestic sectors like services.”
He added: “Another reason is that global uncertainty remains high, with geopolitics being thrown into the mix now. They don’t know what will happen so they will not jump the gun for now.”
Advance estimates released by the Ministry of Trade and Industry (MTI) on Thursday showed first-quarter gross domestic product (GDP) grew at 2.5 per cent year-on-year, easing from 2.9 per cent in the previous quarter, as the manufacturing sector moderated its pace of expansion.
With the MAS reiterating the view that its neutral policy stance is “appropriate for an extended period”, Maybank Kim Eng economist Chua Hak Bin thinks the central bank could stand pat yet again at its next policy review six months later, barring any surprise spikes in inflation or GDP growth.
“We were looking out for the phase ‘extended period’ to be dropped but they’ve maintained that in the statement so it seems to suggest that come October, the MAS may keep its policy stance,” said Dr Chua. The local labour market remains weak and inflation, both headline and core, remains stuck at the lower end of MAS’ forecast range, he added.
Westpac’s currency strategist Sean Callow echoed that sentiment, noting that “those hoping for a hawkish hint for October are likely to be disappointed”.
“There had been some market discussion over whether there would be any hint of a return to modest SGD appreciation from October 2017. There was not,” Mr Callow said. “Six months might seem a long time in (forex) markets but the MAS appears not to expect much to have changed by the next meeting.”
Last April, the central bank unexpectedly flattened the slope of the band it uses to guide the local currency against an undisclosed trading basket, reducing the rate of appreciation to zero per cent.
The MAS maintained this stance last October and reiterated in February that the Government’s growth forecast of between 1 and 3 per cent this year falls within the “planning parameters” of its October monetary policy statement.