MAS eases monetary policy as economy reels from impact of COVID-19

SINGAPORE: The Monetary Authority of Singapore (MAS) eased monetary policy on Monday (Mar 30), in line with expectations, as the economy reels from the impact of a novel coronavirus pandemic.

In its half-yearly monetary policy statement, it said with the deterioration in macroeconomic conditions and expectations of a weaker outlook, its Singapore dollar’s nominal effective exchange rate (S$NEER) policy band has “depreciated to a level slightly below the mid-point of the policy band”.

“MAS will adopt a zero per cent per annum rate of appreciation of the policy band starting at the prevailing level of the S$NEER,” it added.

There will be no change to the width of the policy band.

“This policy decision hence affirms the present level of the S$NEER, as well as the width and zero per cent appreciation slope of the policy band going forward, thus providing stability to the trade-weighted exchange rate,” it said.

This marks the second consecutive easing move by MAS after it reduced the pace of the Singapore dollar’s appreciation “slightly” in October last year.

Unlike most central banks that target the interest rate, the MAS uses the exchange rate as its main policy tool.

This refers to the S$NEER – the exchange rate of the Singapore dollar managed against a trade-weighted basket of currencies from Singapore’s major trading partners.

The S$NEER is allowed to float within an unspecified band. Should it go out of this band, the MAS steps in by buying or selling Sing dollars.

READ: The S$NEER and its slope, width and centre: Questions about Singapore’s monetary policy

The central bank also changes the slope, width and mid-point of this band when it wants to adjust the pace of appreciation or depreciation of the local currency based on assessed risks to Singapore’s growth and inflation.

It typically announces these changes at its two scheduled policy meetings in April and October.

Monday’s policy decision comes earlier than usual amid worsening economic conditions this month as the COVID-19 outbreak continues around the world.

Preliminary growth figures released last week showed the economy shrinking a worse-than-expected 2.2 per cent year-on-year in the first quarter.

Policymakers have also downgraded the official growth forecast for 2020 to between -4 per cent and -1 per cent, a worse outlook from an earlier predicted range of -0.5 per cent to 1.5 per cent.

READ: Singapore’s economy contracts by 2.2% in Q1 as COVID-19 outbreak hits construction, services sectors

READ: Singapore’s ‘bazooka’ stimulus to cushion COVID-19 pain, but recession still on the cards: Economists

Meanwhile, core inflation – a central bank metric that excludes private transport and accommodation costs – fell 0.1 per cent from a year earlier in January, dipping into negative territory for the first time in more than a decade.

A record S$48 billion stimulus package was announced in a supplementary Budget last week to prop up the economy.

Together with the S$6.4 billion announced in Budget 2020, Singapore will earmark close to S$55 billion, or about 11 per cent of its gross domestic product (GDP), for its fight against COVID-19.