MAS eases Singdollar appreciation to 'zero slope', lowers mid-point of policy band in one-two blow

SINGAPORE'S central bank pulled back on its exchange rate-based monetary policy on Monday morning, in line with market expectations, as the deadly Covid-19 pandemic looked set to keep battering economies globally.

The Monetary Authority of Singapore (MAS) has returned the Singapore dollar to a neutral stance - easing again the pace at which the currency can strengthen - after a slight reduction in the rate of appreciation in October 2019.

The MAS also lowered the mid-point of the policy band for the first time since the global financial crisis in April 2009. The width of the band was left untouched

"With the deterioration in macroeconomic conditions and expectations of a weaker outlook, the S$NEER has depreciated to a level slightly below the mid-point of the policy band," the MAS noted, affirming this lowered level.

The slope of the Singdollar nominal effective exchange rate (S$NEER) has not been set at zero since October 2017, with the MAS then tightening policy at both meetings in 2018.

HSBC economists Joseph Incalcaterra and Liu Yun dubbed the re-centring "a more measured response" among the options available to the MAS, since the mid-point was shifted to the slightly lower S$NEER level - rather than below this level, or even moved to the lower bound of the policy band.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

But 11 analysts polled by Bloomberg earlier unanimously predicted that the MAS would make an unprecedented two-step easing in a half-yearly policy review that had been due to be held by Apr 14.

The MAS also reaffirmed that official forecasters expect the Covid-19 pandemic to thrust Singapore into a recession of between 4 per cent and 1 per cent in 2020.

It thus slashed its core inflation and headline or all-items inflation forecasts to between -1 per cent and zero, noting that "disinflationary pressures are expected to broaden", even if the prices of some imported items pick up on the back of factory and shipping disruptions.

The latest negative outlook represents a sharp downgrade from the range of 0.5 per cent to 1.5 per cent that had earlier been anticipated for both core and headline inflation.

Core inflation, which strips out private road transport and accommodation costs, is a key guide for monetary policy as the MAS fulfils its mandate of ensuring medium-term price stability.

"The policy statement supported our view that the MAS does not view the economic effects of the Covid-19 outbreak as short-lived," said Brian Tan, an economist at Barclays Bank, who argued that "a more persistent drag deserved more aggressive policy easing".