Update: MAS slows rate of S$ appreciation, sees 2016 GDP growth at around 2-2.5%

THE Monetary Authority of Singapore (MAS) eased its Singapore dollar policy for the second time this year on Wednesday, as it narrowed 2015 inflation forecasts to the lower end of earlier expectations.

While it is continuing with its policy of a "modest and gradual" appreciation of the S$NEER (Singapore dollar nominal effective exchange rate) band, the central bank said that the rate of appreciation will be "reduced slightly".

For 2015 as a whole, MAS now sees core inflation and headline inflation coming in at around 0.5 per cent and -0.5 per cent respectively. These are at the lowest ends of its earlier forecast ranges of 0.5-1.5 per cent for core inflation, and -0.5-0.5 per cent for headline inflation.

Still, beyond this year, the central bank expects core inflation - which strips out accommodation and private transport costs, and is the focus for monetary policy - to "rise gradually" over the course of 2016 towards its historical average of close to 2 per cent.

In its half-yearly monetary policy statement, MAS said Singapore's economic growth is "slightly weaker" than earlier envisaged. It added that the overall outlook for the global economy has softened since April.

Said MAS: "GDP growth in Singapore is likely to come in at around 2-2.5 per cent in 2015 as a whole, with risks tilted towards the downside. The economy is expected to expand at a broadly similar pace next year, with cyclical headwinds likely to persist into early 2016.

"This measured adjustment (to monetary policy) follows the move to reduce the rate of appreciation of the policy band in January this year, and is supportive of economic growth into 2016, while ensuring price stability over the medium term."