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Covid-19: MAS eases monetary policy to stimulate economy; Singdollar policy band lowered for first time since 2009

SINGAPORE — In a widely expected move, the Monetary Authority of Singapore (MAS) has eased monetary policy by reducing the slope of the Singapore dollar policy band to a zero rate of appreciation in an effort to stimulate the economy, which has been battered by the Covid-19 pandemic.

The Singapore skyline as seen from the Marina Bay Sands SkyPark.

The Singapore skyline as seen from the Marina Bay Sands SkyPark.

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SINGAPORE — In a widely expected move, the Monetary Authority of Singapore (MAS) has eased monetary policy by reducing the slope of the Singapore dollar policy band to a zero rate of appreciation in an effort to stimulate the economy, which has been battered by the Covid-19 pandemic. 

MAS on Monday (March 30) also lowered the midpoint of the policy band, an action it last took during the 2009 global financial crisis, but the width of the policy band will remain unchanged. 

These measures are in line with what many economists surveyed by Bloomberg projected.

MAS manages monetary policy through exchange rate settings, rather than through interest rates as other central banks do, letting the Singapore dollar rise or fall against the currencies of its main trading partners within an undisclosed policy band, known as the Singapore dollar nominal effective exchange rate or S$NEER. 

The Singdollar is allowed to appreciate or depreciate against this basket of currencies, as long as it stays within this band. MAS intervenes where needed to ensure that it does.

MAS' monetary policy decision on Monday would mean that the Singdollar would be appreciating at a slower rate against other currencies. 

The rate of inflation would also slow, even though prices of some imported items may rise owing to supply chain disruptions during the outbreak.

Hence, MAS is also lowering its forecast range for core inflation to -1 per cent and for overall inflation to 0 per cent. 

The S$NEER has depreciated to a level slightly below the midpoint of the policy band as a result of a deterioration in macroeconomic conditions and expectations of a weaker outlook, MAS said. 

“This policy decision hence affirms the present level of the S$NEER, as well as the width and zero per cent appreciation slope of the policy band going forward, thus providing stability to the trade-weighted exchange rate,” the central bank said in its monetary policy statement on Monday. 

The biannual policy review typically happens in April and October, but it was brought forward to March this time. 

The easing of its monetary policy to a neutral stance follows an earlier move to lower the policy band’s gradient in October last year — the first time in three years.

“This stable monetary policy stance also reflects the primary role of fiscal policy in mitigating the economic impact of Covid-19,” read MAS' latest policy statement. 

The fiscal measures introduced by Deputy Prime Minister Heng Swee Keat in his Budget statement in February, as well as the most recent Resilience Budget last Thursday, will “help to preserve jobs, skills and firms’ know-how and capabilities”. 

“MAS’ money market operations will at the same time provide sufficient liquidity to the financial system. Monetary policy will complement these efforts and ensure price stability over the medium term,” it added. 

Authorities are already expecting a full-year recession to hit Singapore’s trade-reliant economy for 2020, with the Trade and Industry Ministry lowering its growth forecast to between -4 and -1 per cent, down from between -0.5 and 1.5 per cent. 

This is the second downgrade the ministry has made in view of the escalating impact of the Covid-19 outbreak, which started in the Chinese city of Wuhan but has since spread around the world, with the United States and Europe now being the new epicentres of the disease. 

Preliminary data also showed that Singapore’s first-quarter gross domestic product (GDP) contracted by 2.2 per cent. 

“The Singapore economy will contract this year. GDP growth will eventually recover following the abrupt downshift in the level of activity, but there is significant uncertainty over the depth and duration of this recession,” MAS said.

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Covid-19 coronavirus singapore dollar MAS exchange rate inflation

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