Quick takes: Slight easing by MAS keeps door open for further action

Against a backdrop of lacklustre growth, the Monetary Authority of Singapore "slightly" reduced the rate of appreciation of the Singapore dollar nominal effective exchange rate policy band in its half-yearly October decision on Monday, while keeping the width and centre of the band unchanged.

This comes after the MAS held policy steady in April, which in turn followed two consecutive slight increases in the pace of Singdollar appreciation in 2018.UOB Global Economics and Markets Research"The MAS has kept its growth outlook unchanged for GDP to come in at around the mid-point of zero to 1 per cent in 2019 and for it to improve 'modestly' in 2020.

"The decisions at this morning's Singdollar policy review were broadly in line with expectations. According to our model, the band should start appreciating at a pace of 0.5 per cent per year versus 1 per cent previously. The central bank has kept the door for another easing should the already weak growth/inflation outlook deteriorate significantly.""The MAS eased FX policy, reducing the slope of the official S$NEER policy band 'slightly', as we expected.

"We had argued that the MAS would ease FX policy because of the storm clouds gathering over the global outlook, the domestic economy remaining weak and the output gap likely turning negative...

"Overall, while our base case is for the MAS to remain on hold in April 2020, we view the risks as being tilted in favour of a further 50 bp slope reduction to zero per cent.""A mild monetary easing is probably insufficient to boost manufacturing and exports in the short term. But the central bank also said it is 'prepared to recalibrate monetary policy should prospects for inflation and growth weaken significantly'.

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