MAS keeps S$ policy band at neutral for an extended period

SINGAPORE'S central bank opted to keep its neutral policy stance of zero per cent appreciation of the S$NEER (Singapore dollar nominal effective exchange rate), adding that such a stance is needed for an "extended period".

The Monetary Authority of Singapore's (MAS) assessment on Thursday pointed to a subdued outlook for growth and inflation for the Singapore economy and its labour market, despite recent strong data. The Singapore dollar weakened against the US dollar by as much as 0.24 per cent to 1.3976 at 8.05am after the announcement.

In its April bi-annual monetary policy statement (MPS), MAS said that it would keep the rate of appreciation of the S$NEER policy band at zero percent. The width of the policy band and the level at which it is centred will be unchanged.

"As indicated in the October 2016 MPS, a neutral policy stance is appropriate for an extended period and should ensure medium-term price stability."

Before Thursday's MPS, many economists had expected MAS to leave its monetary policy stance unchanged, but wondered whether MAS would tweak its assessment on this stance.

MAS first flattened the policy band in April 2016, and kept this stance in October. It said then that this was appropriate given the subdued outlook for growth and inflation.

On Thursday, MAS said that the S$NEER has fluctuated around a strengthening trend, appreciating from below the mid-point of the policy band to the upper half of the band. "The appreciation from late February 2017 reflected, in part, broad-based US dollar weakness."

MAS noted that in recent months, growth for Singapore trade-oriented sectors have picked up, but the domestic ones remained uneven. Domestic sources of inflation have also remained relatively muted, as "conditions in the labour market have slackened since the last policy review."

"The Singapore economy will continue to expand at a modest pace in 2017. MAS core inflation is envisaged to rise gradually, largely on account of higher global oil prices," it said.

"However, demand-driven inflationary pressures will likely be restrained. Over the medium term, core inflation is expected to trend towards but average slightly below 2 per cent."