MAS keeps monetary policy unchanged

Move widely expected; analysts say central bank saving option of easing for tougher times ahead

Facade of Monetary Authority of Singapore (MAS) Building at 10 Shenton Way. PHOTO: ST FILE

The central bank opted to keep its Singapore dollar policy unchanged in its latest statement yesterday, even though the economy seems to be in for a protracted period of slow growth.

The move was widely expected, with economists predicting that the Monetary Authority of Singapore (MAS) would save the option of nudging the currency lower for tougher times ahead.

The central bank uses the exchange rate as its main monetary policy tool to strike a balance between inflation from overseas and economic growth.

The exchange rate is allowed to float within a policy band that the MAS can adjust when it reviews monetary policy. A stronger currency counters inflation by making imports cheaper in Singdollar terms, while a weaker Singdollar - which corresponds to easing monetary policy - helps to lift growth by making exports cheaper abroad.

In its latest policy statement yesterday, the MAS said it is maintaining the rate of appreciation of the Singdollar policy band at zero per cent against a basket of key currencies. The central bank adopted this stance in April, when it unexpectedly eased policy. It was the third time MAS had eased monetary policy since January last year.

"(Such a policy stance) will be needed for an extended period to ensure medium-term price stability," the central bank said yesterday.

It noted that economic growth has weakened and is not expected to pick up significantly next year.

Data out yesterday showed the economy grew at just 0.6 per cent in the third quarter, its slowest rate of growth since 2009 in the wake of the global financial crisis.

Meanwhile, core inflation - which strips out accommodation and private road transport costs to better gauge everyday expenses - is expected to rise modestly from around 1 per cent this year to average 1 per cent to 2 per cent next year.

Citi economist Kit Wei Zheng said the central bank's tone has become more bearish since its last statement in April. However, the latest policy decision suggests that while growth is lacklustre, an outright recession is not expected.

If the economy does take a turn for the worse, however, monetary policy might not necessarily be the best tool to boost growth, Mr Kit said. "Sector-specific and fiscal policy measures could be arguably more effective in supporting the economy and jobs," he noted.

Credit Suisse economist Michael Wan said the MAS will eventually have to ease its exchange rate policy, and expects it to do so at its next meeting in April: "(We) see today's move as delaying the inevitable."

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A version of this article appeared in the print edition of The Straits Times on October 15, 2016, with the headline MAS keeps monetary policy unchanged. Subscribe