Singapore Central Bank Eases Policy by Adjusting Currency Band

  • MAS says it will reduce pace of local dollar's appreciation
  • Economy expands 0.1 percent, avoiding technical recession

Singapore’s central bank eased monetary policy for the second time in 2015 in an effort to revive growth. The local dollar advanced to the strongest in almost a month.

The Monetary Authority of Singapore, which uses the currency rather than interest rates to guide the economy, said in a statement Wednesday it would “slightly” reduce the pace of the currency’s appreciation versus those of its trading partners. The central bank kept both the center and the width of its currency band unchanged.

The economy avoided a technical recession in the third quarter, expanding 0.1 percent from the previous three months, when it shrank a revised 2.5 percent, the trade ministry said Wednesday at the same time as the policy announcement. The central bank said it expects core inflation to quicken gradually in 2016 toward its historical average of close to 2 percent. Sixteen of 25 economists surveyed by Bloomberg predicted the MAS would ease policy, while the remainder predicted no move.

“MAS delivered an easing today, but it is only a token one, with a slight reduction of the slope, but not a shift to neutral,” said Khoon Goh, a senior currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “They still see core inflation picking up next year towards the historical average, and that is probably why they don’t see a need for a more aggressive easing.”

Singapore’s dollar gained 0.4 percent to S$1.3974 against the U.S. currency as of 9:01 a.m. local time, after reaching S$1.3908, the strongest level since Sept. 18. It has still weakened 5.2 percent this year.

‘Gradual Appreciation’

While the central bank will retain a “modest and gradual appreciation” of its currency against a basket of its trading partners, “the rate of appreciation will be reduced slightly,” it said in the statement. “This measured adjustment follows the move to reduce the rate of appreciation of the policy band in January this year, and is supportive of economic growth into 2016.”

The central bank guides the local dollar against a basket of its counterparts and adjusts the pace of its appreciation or depreciation by changing the slope, width and center of a currency band. It doesn’t disclose details on the basket, or the band or the pace of appreciation or depreciation. The MAS has two scheduled policy announcements a year, one in April and the other in October.

“It’s a very subtle move,” said Nizam Idris, head of currencies and fixed-income strategy at Macquarie Bank Ltd. in Singapore. “The market was definitely expecting a slightly more aggressive move than this. It should mean profit taking in long dollar-Sing position and a lower dollar-Sing.”

Singapore’s dollar will probably trade between S$1.39 and S$1.41 in the “very short term,” he said.

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