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Singapore Central Bank Keeps Policy Unchanged

(Bloomberg) — Singapore’s central bank signaled it would keep monetary policy unchanged for longer to complement a massive fiscal stimulus supporting the economy’s recovery.

The Monetary Authority of Singapore, which uses the exchange rate as its main tool rather than a benchmark interest rate, kept its policy settings unchanged on Wednesday, in line with economists’ forecasts. The slope of the currency band was left at 0%, and the width and center retained, implying the MAS won’t seek an appreciation in the currency.



chart: Singapore Monetary Policy History


© Bloomberg
Singapore Monetary Policy History

The central bank said its accommodative policy stance “will remain appropriate for some time” as it sees the economy recovering in 2021 alongside receding disinflation risk. The pace of the economy’s healing will be weak though, amid still-challenging global demand, limited travel, and as consumers face soft labor-market conditions and lingering public health worries, it said.

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The decision was a “well-telegraphed hold” and the MAS is likely to keep its neutral policy stance through the end of 2021, said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore.

The cautious tone from the MAS echoes comments from Managing Director Ravi Menon earlier this week that as much as a fifth of the economy faced “deep scarring” from which it won’t recover.

‘Status Quo’

The policy decision was announced alongside government data showing gross domestic product shrank 7% in the third quarter from a year ago, after declining 13.3% in the previous three months. The median estimate in a Bloomberg survey of economists was for a 6.8% decline.

The government had previously forecast a full-year contraction of 5% to 7%, which it didn’t adjust on Wednesday.

Selena Ling, head of treasury research and strategy at Oversea-Chinese Banking Corp., said the tone of the MAS statement “is still status quo with a tinge of dovishness.” As the city-state continues to ease Covid-related restrictions, it “should bode well for the laggard construction and services sectors,” she said.



chart: Ministry of Trade and Industry


© Bloomberg
Ministry of Trade and Industry

The MAS sees the core inflation measure turning positive in 2021, staying in a range of 0%-1%, while headline inflation is seen at -0.5% to 0.5%.

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The central bank guides the local dollar against a basket of currencies and adjusts the pace of appreciation or depreciation by changing the slope, width and center of the currency band. It doesn’t disclose details of the basket, the band or the pace of appreciation or depreciation.

What Bloomberg’s Economists Say

“We expect the MAS to ease again next year, re-centering its policy band once the opportunity arises — that is, once the Singapore dollar starts to weaken against trading partners. … When global risk appetite recovers, higher-yielding currencies tend to out-perform the Singapore dollar.”

Click here to read the full report.

–Tamara Mast Henderson, Asean economist

The Singapore dollar was barely changed at S$1.3596 against the U.S. currency as at 10:48 a.m. on Wednesday.

“Although ‘accommodative stance appropriate for some time’ can be taken as a forward guidance showing some dovishness, the expectation has not been for a tightening anytime soon,” said Frances Cheung, head of Asia macro strategy at Westpac Banking Corp. in Singapore.

The MAS took unprecedented easing steps in March, about a week before Singapore went into a partial lockdown to curb the spread of the coronavirus. The government has since ramped up its fiscal stimulus to about S$100 billion ($73.5 billion), focusing its support on businesses and workers worst hit by the pandemic.

“Much of the onus on recovery will fall on fiscal policy with several fiscal packages likely to continue to do their work,” said Mitul Kotecha, a strategist at TD Securities in Singapore.

More details from the third-quarter GDP report:

Manufacturing expanded 2% in the third quarter from the same period in 2019 after declining by 0.8% in the previous three monthsConstruction slumped 44.7% year-on-year in the three months through September after a 59.9% decline in the second quarterServices industries contracted 8% after shrinking 13.6% year-on-year in the second quarter

The Ministry of Trade and Industry didn’t provide an annualized quarter-on-quarter figure for gross domestic product in its report, but published it separately on a government website. GDP rose 35.4% on that basis in the third quarter after declining a revised 43.3% in the previous three months.

On a non-annualized basis, GDP rose a seasonally adjusted 7.9% in the third quarter from the previous three months.

(Updates with more details from MAS statement starting in third paragraph.)

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©2020 Bloomberg L.P.

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