Singapore eases monetary policy for first time in 3.5 years

Singapore’s central bank loosened monetary policy for the first time in three-and-a-half years on Monday, while the trade-reliant economy narrowly dodged recession in the third quarter.

Singapore, like other trade-dependent Asian economies, has been hit hard by the US-China trade war and a broader global slowdown.

The Monetary Authority of Singapore (MAS) said it will “reduce slightly” the slope of the band at which the Singapore dollar is allowed to move, effectively allowing for a weaker currency. The width and level at which the band was centered were maintained.

Instead of using interest rates, Singapore manages monetary policy by letting the local dollar rise or fall against a currency basket of its main trading partners within an undisclosed policy band.

The Singapore dollar appreciated slightly against the US dollar on Monday.

“It’s a slight reduction in the rate of appreciation. They did not say the policy was neutral so it suggests that the slope is still positive,” said Barclays economist Brian Tan.

11 economists surveyed by Reuters had all expected Singapore to ease – its first such move since April 2016.

The monetary policy decision was also correctly predicted by 14 of the 22 economists polled by Bloomberg, with the remainder projecting a more aggressive move to a zero slope.

The MAS held policy in April after tightening twice last year.

“In the last six months, the drag on GDP (gross domestic product) growth exerted by the manufacturing sector has intensified, reflecting the ongoing downturn in the global electronics cycle as well as the pullback in investment spending, caused in part by the uncertainty in US-China relations,” the MAS said.

Preliminary GDP data released at the same time showed Singapore’s economy narrowly avoided slipping into a technical recession.

The city-state’s economy expanded 0.6 percent in the third quarter, recovering from a shock 2.7 percent contraction in the second quarter. The economy grew by 0.1 percent yearly.

The manufacturing sector – a pillar of the trade-reliant economy – drove the decline. The sector shrank by 3.5 percent, continuing a 3.3 percent contraction in the previous quarter.

Singapore’s exports have been hammered by softened demand as the United States and China – two of Singapore’s largest export markets – slapped retaliatory tariffs on each other worth billions of dollars in two-way trade, weakening export demand worldwide.

The republic last slipped into recession in the aftermath of the global financial crisis in 2008.

 

The MAS said it is reducing the rate of the Singapore dollar’s appreciation. Picture credit: Idyshah from Pixabay