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Update: MAS maintains neutral policy stance for Singapore dollar

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Singapore's central bank said on Friday that it will maintain the flat slope of the Singapore dollar policy band at zero per cent, even as the city state's economic growth slows and inflation remains low.

SINGAPORE'S central bank said on Friday that it will maintain the flat slope of the Singapore dollar policy band at zero per cent, even as the city state's economic growth slows and inflation remains low.

In its October monetary policy statement, the Monetary Authority of Singapore (MAS) wrote: "MAS will therefore maintain the rate of appreciation of the S$NEER (Singapore dollar nominal effective exchange rate) policy band at zero per cent. The width of the policy band and the level at which it is centred will be unchanged."

The current policy band provides some flexibility for the S$NEER to accommodate the near-term weakness in inflation and growth, it added.

The Singapore dollar weakened after MAS issued its statement, together with disappointing third-quarter gross domestic product (GDP) results.

The currency traded at 1.3811 to the US dollar at 8am, and slipped to 1.3860 at 8.20am, the weakest rate thus far. As at 9.20am, it was trading at 1.3840, Bloomberg data showed.

Singapore's Q3 GDP grew 0.6 per cent year-on-year, but shrank by 4.1 per cent from Q2.

The Singapore dollar is managed against an undisclosed basket of trade-weighted currencies of the country's major trading partners and competitors. MAS then keeps the rate within an unspecified range and changes the slope, width and centre of that band when it wants to adjust the pace of appreciation or depreciation of the local dollar.

In April, MAS flattened the S$NEER slope to zero per cent as it forecast that core inflation will pick up more slowly than expected over 2016 as economic growth slows.

Growth in the Singapore economy has weakened in recent months, said MAS, and is not expected to pick up significantly in 2017.

Core inflation, a key policy consideration for MAS, is expected to rise only gradually next year. Over the medium term, core inflation is still expected to trend towards but average slightly below 2 per cent.

Friday's announcement falls within market consensus. Twenty-one out of 24 economists surveyed by Bloomberg expected MAS to maintain its current stance.