Mas, Monetary Polıcy, Coronavırus, Sıngapore Dollar

Mas, Monetary Polıcy

MAS sets zero appreciation path for Singdollar at lower level in easing move as economy heads for recession

MAS sets zero appreciation path for Singdollar at lower level in easing move

30/3/2020 3:42:00 AM

MAS sets zero appreciation path for Singdollar at lower level in easing move

The decision from the MAS , which uses the exchange rate as its main policy tool rather than interest rates, comes with Singapore and the global economy headed for a recession this year.. Read more at straitstimes.com.

The widely expected move from the MAS, which uses the Singapore dollar’s nominal effective exchange rate (S$NEER) as its main policy tool rather than interest rates, is also effectively a re-centering of the mid-point of the policy band to a lower level.

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The last time the Singapore central bank lowered the band’s centre was during the global financial crisis in 2009.The MAS decision comes amid expectations that Singapore and the global economy are headed for a recession this year due to the escalating coronavirus outbreak. Central banks around the world have embarked on a wave of monetary policy easing, to calm volatile financial markets.

The MAS said in a statement today; “The Singapore economy will contract this year.”“With the deterioration in macroeconomic conditions and expectations of a weaker outlook, the S$NEER has depreciated to a level slightly below the mid-point of the policy band,” it added.

The S$NEER is the the exchange rate of the Singapore dollar managed against a trade-weighted basket of currencies from Singapore's major trading partners.The MAS said it will adopt a zero per cent per annum rate of appreciation of the policy band starting at the prevailing level of the S$NEER. There will be no change to the width of the policy band.

"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," said the MAS.The Singapore dollar has been volatile in the past several weeks, along with global financial markets. The currency hit a low of 1.4650 against the US dollar on March 23, before recovering to around 1.43 last Friday.

Singapore' economy is forecast to shrink by 1.0 to 4.0 per cent this year amid mounting border controls and lockdowns around the world and a sharp pull back in domestic consumption, the Ministry of Trade and Industry (MTI) announced last Thursday.

The midpoint of the forecast range, 2.5 per cent, will make the contraction the worst since the Asian Financial Crisis in 1998 when annual GDP growth shrank 2.2 per cent. The lower end of the estimate, if it materialises, is only compared to a 3.2 per cent contraction in 1964.

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This is the second downgrade for GDP growth in over a month. The last estimate was -0.5 per cent to 1.5 per cent, released just before Budget 2020 in February.Given the rapid deterioration of the economic outlook, Singapore announced a Supplementary Budget of about $48 billion last week. That is in addition to the stimulus package of $6.4 billion in the Budget unveiled last month and puts the total at $55 billion, or 11 per cent of GDP.

The MAS said the two Budget aid packages will help to preserve jobs, while its 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.

“But there is significant uncertainty over the depth and duration of this recession. MAS Core Inflation is likely to remain below its historical average in the near and medium term.” Read more: The Straits Times »

God bless

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