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Stand pat decision in Oct was 'appropriate' as previous easing moves prop up growth: MAS

Tuesday, October 25, 2016 - 12:02

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Even though the outlook for Singapore's economy has weakened, its central bank said on Tuesday that it maintained monetary policy stance to meet its inflation target, while waiting for the full effect of recent easing moves to permeate through the economy.

EVEN though the outlook for Singapore's economy has weakened, its central bank said on Tuesday that it maintained monetary policy stance to meet its inflation target, while waiting for the full effect of recent easing moves to permeate through the economy.

The Monetary Authority of Singapore (MAS) announced two weeks ago that it would keep the Singapore dollar nominal effective exchange rate (S$NEER) policy band at a zero per cent appreciation rate, with the width and level untouched.

On Tuesday, MAS reiterated in its biannual review that "maintaining a neutral policy stance for an extended period was appropriate for keeping MAS core inflation closer to 2 per cent in the medium term".

The review painted a picture of mixed global and domestic developments.

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Though there were some encouraging signs in major economies recently, MAS expects China's growth to ease further next year. "All in, global growth is expected to remain broadly unchanged in 2017 from 2016."

Locally, though global oil prices are rising, imported inflation would be subdued "as the demand-supply imbalance in key commodity markets narrows". Changes in global production patterns will also weigh on Singapore's trade-related sectors. At the same time, increased slack in the labour market will suppress inflation.

October's decision comes after MAS's recent easing moves that started with a surprise move in January 2015. The central bank then reduced the slope again in October 2015, before the third easing move in April this year.

But analysis also showed that "three-fifths of the effects" from these moves have yet to be transmitted through to the economy.

"Thus, the cumulative effects of these policy adjustments will continue to provide some support to GDP (gross domestic product) growth and ensure price stability over the medium term," said MAS.

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