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Update: MAS eases monetary policy, flattens S$ policy band

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Singapore's central bank surprised on Thursday morning with another easing stroke, moving to a neutral policy stance of zero per cent appreciation of the S$NEER (Singapore dollar nominal effective exchange rate) band.

SINGAPORE'S central bank surprised on Thursday morning with another easing stroke, moving to a neutral policy stance of zero per cent appreciation of the S$NEER (Singapore dollar nominal effective exchange rate) band.

"This is not a policy to depreciate the domestic currency, and only removes the modest and gradual appreciation path of the S$NEER policy band that was in place," said the Monetary Authority of Singapore (MAS) in its half-yearly policy statement.

The width of the policy band and the level at which it is centred will be unchanged.

"The Singapore economy is projected to expand at a more modest pace in 2016 than envisaged in the October policy review. MAS core inflation should also pick up more gradually over the course of 2016 than previously anticipated, and is now likely to fall below 2 per cent on average over the medium term," added MAS.

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Core inflation, which strips out the costs of accommodation and private road transport, is the most relevant indicator for monetary policy.

MAS continues to expect core inflation to rise over the course of this year - albeit at a milder pace than earlier expected. “For the whole of 2016, it should come in within the lower half of the 0.5-1.5 per cent forecast range, barring upside surprises to global oil prices,” said MAS. 

The central bank said Thursday's flattening move follows "measured steps" in January and October 2015, where the slope of the band was decreased.

MAS had adopted a "modest and gradual" appreciation path for the S$NEER policy band since April 2010.

"The actual outcome of S$NEER movements over the six months since October 2015 has in fact been a zero percent appreciation compared to the preceding six-month period. The cumulative effects of past S$NEER movements and the new policy path will continue to ensure price stability over the medium term," added the central bank.

Prior to Thursday morning's half-yearly monetary policy statement, the bulk of economists had expected MAS to leave its monetary policy stance unchanged. However, some had warned that it would be a closer call than most thought.

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