MAS reduces slope of monetary policy in sudden move

SINGAPORE — Singapore’s central bank today (Jan 28) reduced the slope of its monetary policy band in an unexpected easing of policy ahead of its scheduled review in April, in a move that extends decisive shifts by global policymakers to counter deflationary pressures and slowing growth.

The Monetary Authority of Singapore (MAS) said in a statement that it is reducing the slope of its policy band for the Singapore dollar in response to "a significant shift" lower in domestic inflation since its last review in October, last year.

The surprise easing, the first since MAS eased policy in October 2011, sent the Singapore dollar skidding to 1.3570 per US dollar, its weakest since August 2010.

"Since the last Monetary Policy Statement in October, developments in the global and domestic inflation environment have led to a significant shift in Singapore's CPI inflation outlook for 2015," the central bank said in a statement.

The Monetary Authority of Singapore (MAS) also cut its inflation forecast for the year for both headline consumer price index (CPI) as well as core CPI (excludes the cost of accomodation and private road transport).

The central bank added that it would continue to stick with a policy of allowing the Singapore dollar to appreciate modestly and gradually against a basket of currencies, but that it would reduce the slope of appreciation.

It cut its inflation forecast for 2015 to -0.5 per cent to 0.5 per cent, from the 0.5 per cent to 1.5 per cent it had expected in October.

Singapore joins global policy makers in acting to shield its economy from dwindling inflation, as investors await commentary from the Federal Reserve, which has been meeting in Washington.

Fed officials started gathering for their two-day policy meeting yesterday. The US central bank is trying to determine whether declining oil prices, a slowdown in European growth and any fallout from the Greek elections will threaten the US recovery as it considers raising interest rate.

Singapore rarely alters policy outside of its two regular reviews in April and October. The last unscheduled statement on monetary policy came in July 2005 after China abandoned its fixed-rate exchange policy.

The central bank later clarified that its main policy review cycle remains unchanged at April and October, despite today's policy adjustment.

A spokesperson for the Monetary Authority of Singapore (MAS) added that the MAS has always maintained flexibility to conduct policy reviews between the scheduled April and October cycles.

"When needed, off-cycle announcements of policy changes or a reaffirmation of the prevailing policy will be released," the spokesperson added in a statement.

“The fact that even the MAS has to ease its hawkish stance signifies the effects of cheaper oil as well as how bad the domestic economy is,” Mr Masashi Murata, a currency strategist at Brown Brothers Harriman & Co in Tokyo, said in a phone interview with Bloomberg. REUTERS, BLOOMBERG