Singapore seen holding monetary policy, saving tools for 2017
SINGAPORE, Oct 11 — Singapore’s central bank will probably refrain from easing policy when it meets this week, saving its ammunition for next year as the city-state’s economic outlook deteriorates.
The Monetary Authority of Singapore, which uses the currency as a tool to manage the economy rather than interest rates, will maintain policy, according to 20 of 22 economists surveyed by Bloomberg. The central bank eased twice in 2015 and again at the first of this year’s two scheduled meetings in April, when it shifted to a neutral stance of zero appreciation for the local dollar.
Growth and inflation in the export-oriented nation hasn’t slowed enough to justify further action, according to Royal Bank of Scotland Group Plc. The MAS is set to reserve its firepower for next year, when the city-state is likely to feel more pain from China’s slowdown and the slump in oil prices that has hurt the local marine and offshore industry.
“We’re not in a recession right now, but that might change by early next year given the global outlook,” said Vaninder Singh, a Singapore-based economist at RBS who correctly predicted the MAS’s moves at the last two gatherings. “Once the meeting is behind us, once people start positioning for April, that might start to push the Singapore dollar lower.”
The local dollar is set to depreciate to S$1.39 (RM4.17) versus the greenback by the middle of next year, a level last reached in March, according to the median of analysts’ forecasts. The currency has weakened 2 per cent since end-June to S$1.3751 at 8am Tokyo time today as traders bet the Federal Reserve will lift US interest rates in December. The Singapore dollar tumbled 6.6 per cent last year, its biggest drop since the 1997 Asian financial crisis.
The authority guides the Singapore dollar against a basket of currencies and adjusts the pace of appreciation or depreciation by changing the slope, width and centre of a band. It refrains from disclosing details of the basket, the band, and the pace of appreciation or depreciation.
The central bank will probably lower the centre of the band in April, a move that’s usually reserved for “seminal moments” such as the onset of the global financial crisis in 2009 and the SARS epidemic in 2003, RBS’s Singh said. Only two economists surveyed, including Michael Wan at Credit Suisse Group AG, predicted the authority would adjust the centre of the band this week.
“Even if MAS easing doesn’t come in October, they will eventually have to do so given the structural economic changes and headwinds facing the economy,” Wan said. “The bias and risk are definitely for the currency to be weaker.”
Singapore’s Deputy Prime Minister Tharman Shanmugaratnam said last month the economy is “in for a tough period, and it will last for a while,” in comments reported by the Business Times. Growth this year will be at the lower end of the government’s forecast of 1 per cent to 2 per cent, he was quoted as saying.
In an unscheduled statement in January last year, the central bank said it would seek a slower pace of appreciation for the Singapore dollar against its trading basket. It left policy unchanged at the first of its two regular meetings in April last year, before “slightly” reducing the slope of appreciation again at its October gathering. It unexpectedly eased in April, adopting a policy last used during the 2008 global financial crisis, as economic growth in the Asian financial hub ground to a halt.
Growth probably stagnated in the third quarter, with gross domestic product posting zero expansion on an annualised basis compared with the previous three months, according to the median estimate of 14 economists surveyed by Bloomberg. Compared with a year earlier, it probably slowed to a 1.7 per cent increase from 2.1 per cent in the second quarter.
The central bank said in July that the core inflation measure, which excludes the costs of accommodation and private road transport, will probably continue to rise.
A decline in local interest rates, with the three-month Singapore interbank offered rate at the lowest level in more than a year, has “done some of the easing work” for policy makers, said Khoon Goh, the head of regional research at Australia & New Zealand Banking Group Ltd in Singapore. The Singapore dollar is set to weaken to S$1.40 at the end of the year on expectation of further stimulus in 2017, he said.
“Economic and inflation developments have not deteriorated sufficiently for the MAS to contemplate further easing at this stage,” said Goh. “Maintaining the neutral policy stance and leaving the re-centreing option on the table gives the MAS some flexibility.” — Bloomberg