SINGAPORE - The Monetary Authority of Singapore (MAS) on Friday (Oct 14) stood pat on its zero appreciation policy for the Singapore dollar in its final scheduled review for 2016.
The move was widely expected with economists predicting the central bank would save the option for nudging the Singdollar lower for next year when the economy is expected to worsen.
Advance data out also on Friday showed the economy contracted by 1.4 per cent in the third quarter over the previous three months, the most in four years. On a year on year basis, gross domestic product edged up 0.6 per cent year.
MAS said it "assesses that a neutral policy stance will be needed for an extended period to ensure medium-term price stability" and that the policy band "provides some flexibility for the S$NEER to accommodate the near-term weakness in inflation and growth".
"The Singapore economy is projected to grow at a slower pace in 2016 than envisaged in the April policy review. GDP growth is on current indications not expected to pick up significantly in 2017, reflecting weak global demand and the cyclical as well as structural factors weighing on Singapore's exports, said MAS.
It added that core inflation will rise modestly from around 1 per cent this year to average 1-2 per cent in 2017, amid emerging slack in the labour market and generally subdued consumer sentiment.
Because of Singapore's reliance on exports, MAS manages the economy through the currency rather than by setting interest rates. It does so by letting the Singapore dollar rise or fall against the currencies of its main trading partners within an undisclosed trading band based on its nominal effective exchange rate (NEER).
In April, the central bank unexpectedly eased policy by setting the rate of appreciation of the Singdollar's policy band at zero per cent.
"Singapore's growth outlook is mediocre but has not deteriorated enough to warrant further easing," Mr Sim Moh Siong, FX strategist for Bank of Singapore, told Reuters before the statement. "If political risk events such as US elections, Italian referendum and European elections roil financial markets for a sustained period, this will heighten the case for MAS easing in 2017," he added.