SINGAPORE - The central bank is slowing the rate of appreciation of the Singapore dollar for the second time this year with economic growth now tipped to be slightly slower than expected.
The Monetary Authority of Singapore (MAS), which uses the currency rather than interest rates to guide the economy, said in a statement on Wednesday it will reduce the slope of its currency band, to "slightly" reduce the rate at which the Singapore dollar is allowed to appreciate.
The easing as MAS' scheduled bi-annual meeting was in line with market expectations - 16 of 25 private sector economists in a Bloomberg poll had expected the central bank to ease.
MAS called its decision to "slightly" slow the Singdollar's appreciation a "measured adjustment".
Some economists had forecast that MAS would move the centre of its trading band lower - in effect devaluing the Singdollar immediately. Re-centering the band lower by half a band would be equivalent to a one-off devaluation of the Singdollar by 2 per cent, DBS Group Holdings senior currency economist Philip Wee estimated in a note on Oct 6.
The economy avoided a technical recession in the third quarter, expanding 0.1 per cent from the previous three months, when it shrank a revised 2.5 per cent, advance estimates out also on Wednesday showed.
Said MAS: "The overall outlook for the global economy has softened compared to the review in April. While the United States economy is likely to expand at a stronger pace on robust private consumption, its import demand has been weak. In the Eurozone and Japan, the pickup in economic activity is envisaged to be gradual. China's growth momentum is easing on a sharp deceleration in investment growth.
"Taken together, these factors will weigh on the region's commodity producers and trade-dependent economies. As a consequence, the growth outlook for Asia ex-Japan as a whole has dimmed."
On Jan 28, the central bank surprised by easing exchange rate policy at an unscheduled meeting, after downgrading its inflation forecast. In April, at its last biannual policy review, MAS held firm.
The exchange rate that MAS targets is trade weighted such that the currencies of Singapore's larger trading partners bear more weight. This trade-weighted exchange rate is known as the Singapore dollar nominal effective exchange rate or S$NEER.
MAS said on Wednesday that S$NEER "had weakened and largely fluctuated in the lower half of the policy band" since July, reflecting "renewed expectations of US monetary policy tightening and a rise in global risk aversion, mainly stemming from fears of a more significant downturn in China and other emerging market economies."
"External sources of inflation are likely to stay generally benign, given ample supply buffers in the major commodity markets and weak global demand conditions," it added.
Standard Chartered economist Jeff Ng said: "We note that MAS's outlook on inflation is now lower near-term, which may have been a factor in the decision. MAS only expects inflation at 0.5 per cent this year, from 0.5-1.5 per cent prior."