Singapore’s MAS holds policy stance while softening dovish tone


While repeating its previous guidance that “that an accommodative policy stance remains appropriate, ” the Monetary Authority of Singapore (MAS) statement dropped the phrase “for some time.” It also said it expects economic growth to outpace its earlier expectations and noted a gradual rise in inflation

SINGAPORE: Singapore’s central bank kept its main monetary settings unchanged, while signalling a slightly less dovish tone going forward as it cautiously eyes a brighter recovery from the pandemic.

While repeating its previous guidance that “that an accommodative policy stance remains appropriate, ” the Monetary Authority of Singapore (MAS) statement dropped the phrase “for some time.” It also said it expects economic growth to outpace its earlier expectations and noted a gradual rise in inflation.

The MAS, which manages the exchange rate of the local dollar as its main monetary tool, held the slope, width and centre of its currency band unchanged yesterday, as expected in a Bloomberg survey. The slope is currently 0%, a policy that implies the MAS isn’t seeking currency appreciation, which it implemented at the outset of the pandemic last year.

As a small city-state highly exposed to trade, Singapore offers a window into the global economic outlook, which is improving as vaccination drives get underway and fiscal and monetary stimulus filters through to businesses and consumers. The MAS pointed to a firming in domestic trade-related and modern services sectors, even as travel restrictions continue to hold back demand for leisure and hospitality.

“The Singapore economy will grow at an above-trend pace this year, but the sectors worst hit by the crisis will continue to face significant demand shortfalls, ” the central bank said in its statement. “As core inflation is expected to stay low this year, MAS assesses that an accommodative policy stance remains appropriate.”

All 17 economists surveyed predicted no changes to the policy band, which the MAS uses to guide the local dollar against a trade-weighted basket of currencies. Rather than using interest rates to maintain price stability, it adjusts the slope, or pace of appreciation, as well as the width and centre of the currency band. It doesn’t disclose the details of these components.

The Singapore dollar gained 0.2% against the US dollar to 1.3383 as of 8:51am yesterday, although in trade-weighted terms the gain was about 0.1%, according to a model from ANZ.

The MAS statement represents “a nuanced calibration to a less aggressively dovish position, ” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd in Singapore. “In essence the MAS is shifting to a more state-dependent policy accommodation that will balance between uneven but ‘above-trend’ pace of recovery this year.”

Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd, described the statement as “a touch hawkish” because of the absence of a time-based reference for the policy settings.

“It’s clear that the next policy move will be a tightening, ” he said. The statement “leaves the door open for a potential move in October. But I am still of the view that the earliest move would be April next year.”

The decision was announced at the same time as government data showing gross domestic product (GDP) grew 0.2% in the first quarter from a year ago, after falling 2.4% in the previous three months.

On a non-annualised basis, GDP in the first quarter rose a seasonally adjusted 2.0% from the previous three months.

Barring a setback to the global economy, this year’s GDP growth is likely to exceed the upper end of the official 4%-6% forecast range, the MAS said, without providing a new range. — Bloomberg

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