Singapore eases monetary policy as growth stalls

Agence France-Presse

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Singapore eases monetary policy as growth stalls

EPA

The Monetary Authority of Singapore says it is shifting to a neutral policy of allowing for a 'zero percent' appreciation of the local dollar

SINGAPORE – Singapore announced a shock loosening of monetary policy Thursday, April 14, to kickstart the stuttering economy, as it forecast a slower growth outlook this year and analysts warned of a possible recession.

The city-state’s central bank joined several others around the world in announcing easing measures as they battle sluggish global demand – particularly from key market China – and a weak outlook. 

The Monetary Authority of Singapore (MAS) said it was shifting to a neutral policy of allowing for a “zero percent” appreciation of the local dollar. Previously, it allowed for a “modest and gradual” rise of the local unit.

Singapore uses currency policy rather than interest rates as a tool to tweak the island’s economy. It manages the dollar against an undisclosed basket of currencies of its major trading partners and competitors.

The MAS said in a statement: “The Singapore economy is projected to expand at a more modest pace in 2016 than envisaged in the October policy review.”

The MAS last shifted its currency policy to zero in October 2008, when the economy was in recession as the world was ravaged by the global financial crisis. It twice lowered the level of appreciation last year, in January and October.

“This is not a policy to depreciate the domestic currency and only removes the modest and gradual appreciation path of (exchange rate) policy band that was in place,” it said.

However, the announcement sent the local currency tumbling 0.9% against the US dollar, dragging other regional units along with it on fears it will lead to similar moves in regional emerging economies protect their exports.

The local currency is now at its weakest level since March 29. It had gained 7.40% over the past 3 months on expectations US interest rates would not rise until June at the earliest.

A weaker currency makes Singapore’s exports more competitive.

Thursday’s announcement came as the government released data showing economic growth was flat quarter-on-quarter in January-March, which was sharply down from the 6.2% seen in the previous three months.

The government has said it expects the economy to expand 1.0-3.0% this year, but private sector economists have forecast it to come it at the lower end of the range. The economy grew 2.0% in 2015.

First quarter growth “was flat on a quarter-on-quarter seasonally-adjusted basis in contrast to the 6.2% expansion in the preceding quarter,” the trade ministry said in a separate statement.

DBS Bank senior economist Irvin Seah warned a technical recession could not be ruled out.

“Going forward, growth outlook in the next 6-9 months will remain weak. Our GDP growth forecast for the full year remains at 1.5%, which essentially implies at least one quarter of contraction,” he said in a note.

“In fact, we maintain the view that risk of a technical recession (two successive quarters of contraction) should not be discounted.” – Rappler.com

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