As largely expected, the Monetary Authority of Singapore (MAS) will be maintaining the rate of appreciation of the Singapore dollar (SGD) nominal effective exchange rate (NEER) policy band at 0%.
The slope of the SGD NEER policy band was reduced to 0% by MAS in April 2016, given a more modest outlook for economy growth in the year.
In its latest monetary policy statement on Friday, MAS now projects the Singapore economy to grow at an even slower pace this year than envisaged in April.
This is because gross domestic product (GDP) growth is on current indications not expected to pick up significantly in 2017, reflecting weak global demand and the cyclical as well as structural factors weighing on Singapore’s exports, says MAS.
Advance estimates released by the Ministry of Trade and Industry today (MTI) indicates that the Singapore economy contracted by 4.1% on a q-o-q seasonally adjusted annualised basis in Q3 2016, following the marginal 0.2% expansion in Q2.
As a result, MAS says a neutral policy stance will be needed for “an extended period to ensure medium-term price stability”, while at the same time, the current policy band provides some flexibility for the SGD NEER to accommodate the near-term weakness in inflation and growth.
In its outlook, the central bank notes that growth in Singapore’s economy has weakened and is not expected to pick up significantly until next year.
It also expects core inflation to rise only gradually from around 1% this year to an average of 1-2% in 2017, amid emerging slack in the labour market and generally subdued consumer sentiment. CPI-all Items inflation has troughed and is expected to come in at 0.5–1.5% in 2017 from around -0.5% this year, adds MAS.
This article first appeared in The Edge Singapore Market Report.