Monetary policy shifts and their significance

The Monetary Authority of Singapore said there is significant uncertainty over the depth and duration of this recession.
The Monetary Authority of Singapore said there is significant uncertainty over the depth and duration of this recession.PHOTO: ST FILE

What are monetary policies?

Monetary policies aim to control inflation, among other economic objectives. For example, in an economic downturn, the central bank may depreciate the currency to make its exports more attractive to foreign buyers. But this would also make imports more expensive.

What is the monetary policy in Singapore? What is the S$Neer?

In Singapore, the Monetary Authority of Singapore (MAS) is the central bank that regulates the Singapore dollar by guiding its value against a basket of currencies. This is the Singapore dollar nominal effective exchange rate, or S$Neer. Its aim is to maintain price stability conducive to sustained growth of the economy.

MAS sets boundaries, or what it calls a policy band, within which the Singdollar is allowed to appreciate and depreciate.

What did MAS do this time?

Following the depreciation of the Singdollar in recent weeks, MAS set the Singdollar on a path of zero appreciation at the prevailing level of the Singdollar yesterday.

A sharper slope translates to a quicker appreciation of the Singdollar. With a zero slope, the Singdollar will not appreciate and generally be stable against the basket of currencies.

The Singdollar had been allowed to depreciate against the basket of currencies recently because of weakening economic conditions.

 
 

What does the MAS move mean for you and me?

MAS' mandate is to maintain price stability in the middle term, said CIMB Private Banking economist Song Seng Wun.

"The sharp pullback in economic activity, which overall, coupled with the pullback in demand, will have implications on prices," he added. "For the average person on the street, the MAS policy shift should not have any immediate impact on their daily lives."

A version of this article appeared in the print edition of The Straits Times on March 31, 2020, with the headline 'Monetary policy shifts and their significance'. Print Edition | Subscribe