Singapore's economy may be a few quarters away from a recovery as the decline in trade and manufacturing this year has not really spread to other sectors, said the head of the Monetary Authority of Singapore (MAS).
MAS' baseline view is that the current cycle should be bottoming out towards the end of the year and into next year, its managing director Ravi Menon said in an interview with Bloomberg earlier this week.
That is based on the assumption that the slump will be largely contained in the trade and manufacturing industries, he said.
Singapore's export-reliant economy has seen a sharper downturn in the second half of this year amid ongoing tensions between the United States and China, two of its biggest trading partners. Prime Minister Lee Hsien Loong said last week that the city state would be "lucky" to achieve positive growth for the year.
Even after easing policy this month for the first time in three years, "we are keeping some powder dry and we have said as much that, if necessary", MAS is prepared to use it, Mr Menon, 55, told Bloomberg Television's Haslinda Amin.
MAS expects growth to come in around the midpoint of an official 0 per cent to 1 per cent forecast range this year, then improve modestly next year.
The central bank, which uses the exchange rate as its primary policy tool, slightly reduced the slope of its currency band on Oct 14.
ROOM TO MANOEUVRE
We can, if necessary, bring the exchange-rate path to zero as we have done before. We have never before had a policy of deliberately depreciating the currency, but we can always recentre the band downward.
MONETARY AUTHORITY OF SINGAPORE MANAGING DIRECTOR RAVI MENON.
"It is not going to be a robust recovery," Mr Menon said. The negative output gap - the estimated difference between the economy's actual and potential performance - is not expected to widen, though there are risks it could, he added.
For now, Singapore and many other Asian economies have shown resilience in domestic demand and service industries.
To date, the current slowdown is really quite concentrated in trade and manufacturing, Mr Menon said.
"That doesn't mean it cannot spill over into other parts of the economy - it could very well do so. That is a risk that we are seriously taking into account. But as of now, there are no signs of that."
Central banks around the world are looking for ways to bolster their economies, turning to unconventional policy tools like negative in-terest rates and quantitative easing (QE) as they run out of policy space.
As MAS has an exchange-rate policy, it is not constrained by the zero interest rate level like other central banks, said Mr Menon.
MAS has a fair amount of policy space on the monetary front without having to think about QE, he said. "We can, if necessary, bring the exchange-rate path to zero as we have done before," he added. "We have never before had a policy of deliberately depreciating the currency, but we can always recentre the band downward."
Mr Menon, who has served as MAS chief since 2011, worried that there were unrealistic expectations placed on global central banks to get their economies out of every rough patch.
There should be a better balance between government spending and monetary stimulus, he said, reiterating the sentiment from several global finance chiefs at last week's International Monetary Fund annual meeting in Washington.
"It can't be that every slowdown, every risk or threat on the horizon has to be addressed by a loosening of monetary policy," Mr Menon said. Fiscal policy has a stronger role to play, he added.