MAS eases monetary policy 'slightly' in October

THE Monetary Authority of Singapore (MAS) has eased monetary policy "slightly" in its latest half-yearly monetary policy review on Monday, making the slope of the Singapore dollar nominal effective exchange rate (S$NEER) policy band less steep and slightly reducing its rate of appreciation.

The width of the policy band and the level at which it is centred will be unchanged. "This measured adjustment to the policy stance is consistent with medium-term price stability, given the current economic outlook," said the central bank.

"MAS will continue to closely monitor economic developments and is prepared to recalibrate monetary policy should prospects for inflation and growth weaken significantly," it added.

MAS manages the exchange rate against a trade-weighted basket of currencies of major trade partners, with the Singdollar allowed to float within the undisclosed S$NEER policy band.

Most economists had expected a slight lowering of the S$NEER slope prior to Monday's announcement, given the country's lacklustre economic performance and continued global headwinds.

The latest move comes after the MAS held policy steady in April, which in turn followed two consecutive slight increases in the pace of Singdollar appreciation in 2018.

Explaining the latest monetary policy decision, MAS said that GDP growth should pick up modestly in 2020, "but the level of output will remain below potential".

"Consequently, inflationary pressures should be muted," it added. It expects MAS core inflation to remain below its historical average over the next few quarters before rising gradually over the medium term.

"Core inflation has come in lower than anticipated in recent months, and will remain subdued in the year ahead," noted the MAS. It expects core inflation to come in at the lower end of the 1 and 2 per cent forecast range for 2019, and average 0.5 to 1.5 per cent in 2020.

The MAS has also narrowed its projection for 2019 headline inflation to 0.5 per cent, from the previous forecast range of 0.5 to 1.5 per cent. Headline inflation is expected to average 0.5 to 1.5 per cent in 2020.

In August, the official GDP growth forecast for 2019 was lowered to between zero and 1 per cent, from the previous range of 1.5 to 2.5 per cent.

Also on Monday, advanced estimates from the Ministry of Trade and Industry had GDP growth coming in at 0.1 per cent in the third quarter, the same rate as in the preceding quarter.

On a quarter-on-quarter seasonally-adjusted annualised basis, growth was 0.6 per cent, a turnaround from the previous quarter's 2.7 per cent contraction, thus dodging a technical recession.