The Monetary Authority of Singapore (MAS) said it is setting the rate of appreciation of the Singapore dollar policy band at zero percent in a surprise easing of its monetary policy announced on Thursday (14 April).
“This is not a policy to depreciate the domestic currency,” MAS said, adding that it only removed the modest and gradual appreciation path of the Singapore dollar nominal effective exchange rate (S$NEER) policy band that was in place.
“The width of the policy band and the level at which it is centred will be unchanged,” it added.
The central bank, which uses the Singapore dollar instead of interest rates to guide the economy, manages monetary policy by letting the local currency rise or fall against the currencies of its main trading partners.
After the 6.2 percent expansion recorded in Q4 last year, Singapore’s economy stalled in Q1 and registered a flat growth on a quarter-on-quarter seasonally adjusted annualised basis, the advanced estimates by the Ministry of Trade and Industry revealed.
Meanwhile, MAS Core Inflation has also been subdued.
According to MAS, the Singapore economy is “projected to expand at a more modest pace in 2016 than envisaged in the October policy review. MAS Core Inflation should also pick up more gradually over the course of 2016 than previously anticipated, and is now likely to fall below 2 percent on average over the medium term.”
It added that the move to a neutral policy stance of zero percent appreciation follows the measured steps that the central bank has taken to reduce the rate of appreciation of the policy band in January and October 2015 respectively.
“The actual outcome of S$NEER movements over the six months since October 2015 has in fact been a zero percent appreciation compared to the preceding six-month period,” it said. “The cumulative effects of past S$NEER movements and the new policy path will continue to ensure price stability over the medium term,” it added.
Following the announcement, the Singapore dollar weakened 0.9 percent to $1.36 levels to the US dollar—its weakest since March 29. At around 11.22am, the Singdollar was trading at $1.3610 to the greenback from Wednesday’s close of $1.3501.