Monetary Authority of Singapore sets zero appreciation path for Singdollar with switch to neutral policy stance

The Monetary Authority of Singapore (MAS) building.
The Monetary Authority of Singapore (MAS) building.PHOTO: ST FILE

SINGAPORE - The central bank will set the rate of the Singapore dollar's appreciation to zero per cent, in a move to support economic growth against a dimmer global economic outlook since its last meeting.

The Monetary Authority of Singapore (MAS), which uses the currency rather than interest rates to guide the economy said on Thursday (April 14): "This is not a policy to depreciate the domestic currency, and only removes the modest and gradual appreciation path of the S$NEER policy band that was in place."

The last time MAS shifted from "modest and gradual" appreciation to a zero per cent appreciation stance was in October 2008, during the global financial crisis.


The Singapore dollar tumbled 0.9 per cent to $1.36 levels to the US dollar on the news. At 8:36am, the Singdollar was trading at $1.3626 to the greenback from Wednesday's close of $1.3501.

The Singapore dollar has strengthened more than 5 per cent versus the greenback this year as traders pushed back forecasts for when the Federal Reserve will raise US interest rates due to heightened global risks.

Thursday's shift to a "neutral poliy stance" is a departure from the policy of modest and gradual S$NEER appreciation that the MAS had adopted since April 2010, after the last financial crisis. The Singapore dollar nominal effective exchange rate, or S$NEER, is a trade-weighted exchange rate in which the currencies of Singapore's larger trading partners bear more weight.

The MAS move comes as a surprise to the market - 12 of 18 private sector economists polled by Bloomberg had expected the MAS to maintain its current policy stance at the scheduled bi-annual meeting, rather than ease.

MAS eased policy in January and October last year, both times reducing the slope of the Singapore dollar's appreciation path.

MAS said on Thursday: "Compared to expectations in October 2015, the Singapore economy is now projected to expand at a more modest pace this year, against the backdrop of a less favourable external environment. MAS Core Inflation is likely to pick up gradually over 2016 as the disinflationary effects of Budgetary and other one-off measures fade. However, the increase in core inflation will be milder than earlier expected."

"CPI-All Items inflation will remain negative throughout 2016. Over the medium term, core inflation is expected to average slightly below 2 per cent."

The central bank adjusts the pace of appreciation or depreciation of the Singdollar by changing the slope, width or centre of the band. It does not disclose details of the basket, the band, and the pace of appreciation or depreciation. The MAS holds its next policy meeting in October.