Singapore’s Central Bank Takes Unprecedented Easing Action

Singapore’s central bank took unprecedented easing steps Monday to support a trade-reliant economy being slammed by the coronavirus outbreak.

TheMonetary Authority of Singapore, which uses the exchange rate as its main policy tool rather than a benchmark interest rate,lowered the midpoint of the currency band and reduced the slope to zero. That implies the central bank will allow for a weaker exchange rate to help support export-driven growth and to ward off deflationary threats.

All 16 economists in a Bloombergsurvey projected the MAS would take that dual action. Singapore’s currency pared gains of as much as 0.4% to trade little changed at 1.4275 against the dollar as at 9.39 a.m local time.

Monetary Authority of Singapore’s Past Policy Changes: Table

The unusually aggressive policy action follows days after Singapore posted its biggestcontraction in GDP in a decade in the first quarter and the government projected a severe recession for the full year. Deputy Prime Minister Heng Swee Keat last week unveiled a secondfiscal support package of S$48 billion ($33.6 billion) to help businesses and consumers hurt by the virus outbreak.

The MAS’s “statement really re-emphasizes that it’s fiscal policy that’s doing the heavy lifting,” said Selena Ling, head of treasury research and strategy at Oversea-Chinese Banking Corp. The central bank’s action is “going to be complementary, and not the main driver for trying to head off some of the downside risks from Covid-19.”

Other details from the statement:

  • MAS core inflation and CPI-all items inflation are expected to average between −1 and 0% in 2020. Core CPI will likely remain below its historical average in the near and medium term
  • GDP expected to contract 1% to 4% this year, which will result in substantial widening of the negative output gap. There’s “significant uncertainty” over the depth and duration of the recession

    The central bank sees global GDP stalling or even contracting in the first half of this year, given “significant interruption” to the economies of most of Singapore’s major trading partners. The slump is likely to persist in the second half of 2020 even as China shows some signs of recovery, the MAS said.

    What Bloomberg’s Economists Say

    This double-barrelled easing is meant to neutralize headwinds to growth from currency appreciation against trading partners. This will also help ease deflationary pressures, which make it harder for debtors.

    — Tamara Mast Henderson, Asean economist

    While fiscal and monetary policy globally should help mitigate the hit to the economy, “major uncertainty remains” and recovery will depend on the “epidemiological course of the pandemic and the efficacy of policy responses,” it said.

    The MAS guides the local dollar against a basket of currencies and adjusts the pace of appreciation or depreciation by changing the slope, width and center of the currency band. It doesn’t disclose details of the basket, the band or the pace of appreciation or depreciation.

    The central bank has two scheduled policy moves a year. Monday’s decision was brought forward from its typical April timing, and follows aneasing in October.

    — With assistance by Tomoko Sato, Joyce Koh, Ruth Carson, and Myungshin Cho

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