Singapore dollar hits 4.5-year low against US dollar

Singapore dollar hits 4.5-year low against US dollar

SINGAPORE - Singapore's central bank on Wednesday unexpectedly eased monetary policy ahead of its scheduled review in April, in a move that extends decisive shifts by global policymakers to counter deflationary pressures and slowing growth.

The Monetary Authority of Singapore (MAS) said in a statement that it is reducing the slope of its policy band for the Singapore dollar in response to "a significant shift" lower in domestic inflation since its last review in October, 2014.

The surprise easing, the first since MAS eased policy in October 2011, sent the Singapore dollar skidding to 1.3570 per US dollar, its weakest since August 2010.

"Since the last Monetary Policy Statement in October, developments in the global and domestic inflation environment have led to a significant shift in Singapore's CPI inflation outlook for 2015," the central bank said in a statement.

The central bank - which targets the exchange rate for policy setting instead of interest rates - said that it would continue to stick with a policy of allowing the Singapore dollar to appreciate modestly and gradually against a basket of currencies.

"While the slope of the band is reduced, MAS maintained the modest appreciation stance, while keeping the centre of the band and width of the band unchanged," said Christopher Wong, a senior FX analyst at Maybank in Singapore. "This is not a move to neutralise the pace of appreciation. Meaning MAS still keeping modest appreciation stance but reduced pace."

Singapore rarely alters policy outside of its two regular reviews in April and October. The last unscheduled statement on monetary policy came in July 2005 after China abandoned its fixed-rate exchange policy.

Wednesday's move follows similar surprises in global monetary policymaking, including the Bank of Canada's shock rate cut last week and a larger-than-expected bond-buying stimulus programme by the European Central Bank - all of which were aimed at fighting off the threat of deflation from plunging oil and slowing global growth.

The central bank cut its inflation forecast for the year for both headline consumer price index (CPI) as well as core CPI.

It cut its inflation forecast for 2015 to -0.5 pct to 0.5 per cent, from the 0.5 per cent to 1.5 per cent it had expected in October.

The central bank said this measured adjustment to the policy stance is consistent with the more benign inflation outlook in 2015 and is appropriate for ensuring medium-term price stability in the economy.

Singapore's economy has also been tepid, with growth slowing more than expected in the fourth quarter as the manufacturing sector contracted in the face of erratic global demand, raising concerns about the outlook for 2015.

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