Singapore central bank seen easing again after Jan shock

[SINGAPORE] Singapore's central bank is poised to ease monetary policy for the second time in 2015 in an effort to revive dwindling growth, economists predict. The Monetary Authority of Singapore, which manages the economy through guiding the currency rather than setting interest rates, will boost stimulus when it meets on Wednesday, according to 16 of 25 economists surveyed by Bloomberg. The remainder predict no move.

The MAS eased policy at an unscheduled meeting in January, saying it would seek to slow the pace of the local dollar's gains versus its trading partners. At the first of this year's two scheduled meetings in April, it refrained from further action.

Singapore's economic performance has worsened since the April gathering. Analysts forecast the nation entered a technical recession in the third quarter, while consumer prices dropped for a 10th month in August, the longest streak of declines since the Asian financial crisis. Analysts predict the currency is on course for its worst year since 1997.

"The MAS has to acknowledge the fact that things have panned out worse than they expected, both in terms of growth, led by external factors, and inflation domestically," said Nizam Idris, head of currencies and fixed-income strategy at Macquarie Bank Ltd. in Singapore. "The current policy setting does not allow for further depreciation of the Singapore dollar."

The Monetary Authority guides the local currency against an undisclosed basket and adjusts the pace of appreciation or depreciation by changing the slope, width and center of a band. It refrains from disclosing details of the basket, the band, and the pace of appreciation or depreciation.

Nine economists predict the central bank will lower the center of the band, allowing the Singapore dollar to weaken in the near term. Ten forecast it would reduce the slope, slowing the pace of the currency's appreciation against the basket over time. Four expect the monetary authority will widen the band, tolerating increased volatility.

"With inflation below the long-term average and growth slowing, this suggests that MAS should be in a position to ease policy," said Khoon Goh, a senior currency strategist at Australia & New Zealand Banking Group Ltd. "The easing that was done in January was a fairly modest one." The central bank will probably recenter its policy band to the prevailing rate, allowing the currency to weaken, he said.

Singapore's dollar will decline to S$1.44 to the US currency by year-end, according to the median estimate of a separate Bloomberg survey. That would translate into a loss of about 8 per cent for the year, the worst annual performance since the currency tumbled 17 per cent during the Asian crisis in 1997.

The local dollar was at S$1.4021 at 8.31 am local time on Tuesday after depreciating to S$1.4366 on Oct 2, the weakest level since September 2009.

Singapore's export-dependent economy has been hurt by slowing growth in China, while uneven recoveries in the US and Europe have damped demand for Asian goods.

Gross domestic product shrank 4 per cent in the second quarter from the previous three months, the trade ministry said Aug. 11. GDP contracted 0.1 per cent in the third quarter, according to a Bloomberg survey before the advance figures are released Wednesday. Consumer prices dropped 0.8 percent in August, the statistics department said Sept. 23.

It will take more than a technical recession to convince the central bank to ease policy again, according to Oversea- Chinese Banking Corp.

The central bank is more concerned about "an outright recession, rather than a technical recession," said Selena Ling, an analyst at OCBC in Singapore. The economy will still expand about 2 percent this year, she said.

"We still have about a more-than 50 per cent chance of no move, mainly because I think the growth and the inflation story is not disastrous by any account," she said. "It's a little bit underwhelming, but it's not disastrous yet."

BLOOMBERG