SINGAPORE: Singapore’s central bank left monetary policy unchanged on Friday, without re-committing that its neutral stance was appropriate for an extended period, giving itself room to tighten next year if necessary.
After easing three times between January 2015 and April last year, the Monetary Authority of Singapore stuck to its neutral stance of zero appreciation in the currency, in line with the forecasts of all but one of the 23 economists surveyed by Bloomberg. The MAS is the only central bank in a major developed nation to use the exchange rate as its main tool.
The MAS referred to comments in its October 2016 statement that the neutral stance would be appropriate for an “extended period,” without explicitly repeating that guidance going forward.
“By dropping that, they sort of change the tone and signal that they could tighten into next year but haven’t yet pulled the trigger,” Michael Wan, an economist at Credit Suisse Group AG in Singapore, said by phone.
Similar to policy makers in other developed countries, like the European Central Bank, “they want to give themselves space to tighten if inflation picks up because of stronger growth.”
The MAS said economic growth will probably come in at the upper half of the 2% to 3% forecast range for this year, but expand at a slightly slower pace in 2018. In a separate report on Friday, the trade ministry said gross domestic product grew an annualized 6.3% in the third quarter from the previous three months, beating most forecasts in a Bloomberg survey.
“For the rest of the year and into 2018, GDP growth in Singapore’s major trading partners is expected to remain firm, but could slow slightly as the global economic recovery enters a more mature phase,” the MAS said.
Core inflation is projected to come in at about 1.5% this year and average 1 percent to 2 percent next year, it said. Over the medium term, it’s expected to “trend towards but average slightly below 2%,” the central bank said.
Currency Moves
The Singapore dollar fell 0.1% to S$1.3536 per greenback at 8:52am local time.
The central bank guides the local dollar against a basket of its counterparts and adjusts the pace of its appreciation or depreciation by changing the slope, width and center of a currency band. It doesn’t disclose details on the basket, or the band or the pace of appreciation or depreciation.
“So long as core inflation stays below 2%, there is no urgency for MAS to tighten policy,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd in Singapore.
“On the whole, not as hawkish as what the market had been expecting, but equally cannot say it is dovish as well. It looks like the MAS is giving themselves some room to tighten next year if they see fit.” - Bloomberg
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