Intensifying market turbulence from the global financial crisis have prompted central banks across the world to loosen policy to avoid a global recession. -- PHOTO: THOMSON REUTERS
SINGAPORE on Friday loosened its monetary policy for the first time in more than four years, citing the global financial crisis and lower domestic growth as well as easing inflation.
The move by the Monetary Authority (MAS) - Singapore's de facto central bank - followed coordinated interest rate cuts by the world's leading central banks earlier this week in an effort to calm turbulent markets.
The MAS conducts monetary policy through the local currency rather than by setting interest rates.
The Singapore dollar is traded against a basket of currencies of its major trading partners within an undisclosed band known as the nominal effective exchange rate (NEER).
In a statement, MAS said it had maintained the policy of a modest and gradual appreciation of the NEER policy band since April 2004 but is shifting its policy to zero percent appreciation.
'Against the backdrop of a weakening external economic environment and continuing stresses in global financial markets, the growth of the Singapore economy is expected to remain below potential in the period ahead.
'Concomitantly, external and domestic inflationary pressures are likely to ease,' MAS said in explaining its policy change.
Also on Friday the Ministry of Trade and Industry issued estimates showing Singapore's trade-sensitive economy declined for a second straight quarter, and said it was revising downwards the city-state's full-year growth forecast to around three per cent.
On a seasonally adjusted quarter-on-quarter annualised basis, real GDP declined by 6.3 per cent in the third quarter after contracting 5.7 per cent in the previous quarter, MTI said.
The figures mean Singapore has entered a technical recession, generally defined as two consecutive quarters of quarter-on-quarter contractions in economic output.
'The Singapore economy has weakened over the course of 2008, alongside an escalation in the turmoil in financial markets and a more severe deceleration in global economic activity,' MAS said.
These developments meant new uncertainties for the Singapore economy, while slower Asian growth would restrain activity in a range of service industries such as transportation and tourism, it said.
'The risks to external demand conditions continue to be on the downside, and a more severe global downturn cannot be discounted,' the bank said.
In its last policy statement issued in April, the bank said it had further tightened monetary policy in a bid to address a sharp rise in inflation, which has now begun to ease.
Consumer price index inflation is expected to fall within the forecast six to seven per cent range this year before easing to 2.5-3.5 per cent next year as the global and domestic economies slow, MAS said.
In mid-morning trade the Singapore dollar was at S$1.4753 for one US dollar, against S$1.4702 late on Thursday.
After MAS's tightening in April, the Singapore dollar shot to all-time highs of S$1.3593 to one US dollar. -- AFP
