A WEAKENING Singapore dollar is not on the policy agenda, the Monetary Authority of Singapore (MAS) signalled on Tuesday.
In its twice-yearly Macroeconomic Review, the central bank not only elaborated on its latest monetary policy decision, but also went a step further, calling earlier expectations of a more aggressive easing stroke "clearly unwarranted".
On Oct 14, it had surprised by opting to retain the modest and gradual appreciation path for the Singapore dollar nominal effective exchange rate (S$NEER) policy band, while "slightly" reducing its slope. No change was made to the width of the band and the level at which it is centred.
This was contrary to what most market players were expecting; the consensus view was for either a downward recentring or a flattening of the band.
Said MAS in its report: "An even stronger policy easing in the most recent October review, including flattening the slope of the S$NEER policy band, was clearly unwarranted, as the Singapore economy was neither experiencing an outright retraction in economic activity nor widespread price declines."
It stressed that its latest policy decision was underpinned by a softer-than-anticipated outlook for gross domestic product (GDP) growth and inflation. It added that October's slight slope reduction will keep the level of real GDP close to its potential over the medium term, and therefore help to promote price stability in the economy.
"(MAS Economic Policy Group's) estimates suggest that this optimal middle path between maintaining the policy status quo and adopting an even looser policy stance minimises macroeconomic volatility, while promoting medium-term price stability. The measured policy move in October will therefore lead to comparatively more favourable growth and inflation outcomes for the Singapore economy," said the central bank.
Private-sector economists The Business Times spoke to generally agreed that MAS's Tuesday report indicates little room for further policy easing going forward, barring significant shifts in Singapore's core inflation profile.
UOB economist Francis Tan said: "They seem to be hinting quite strongly that using the information they have now, and the trends they're expecting in the next few months, that there isn't much room for more easing."
OCBC economist Selena Ling added: "I think this is probably the first time that they've come out quite explicitly to refute the speculation out there."
Still, both she and DBS economist Irvin Seah stressed that a lot can change in the lead-up to April, when the central bank next meets to review its monetary policy stance.
"Conditions in the external environment are still very fluid. It still remains to be seen how drastic the deceleration in China will be," said Mr Seah, who believes it is too premature to say that further easing is not on the cards.
He added: "My take is it could potentially imply that any policy response in the event of negative shocks to growth would come from the fiscal perspective. This has been done many times in the past, where the government continues to keep monetary policy steady, while using fiscal policy to counter short-term cyclical pressures."
In its Macroeconomic Review, MAS said that its overall macroeconomic policy mix - a continuation of the modest and gradual appreciation path for the exchange rate policy band and a moderately expansionary fiscal policy stance - is appropriate, given the expected growth and inflation dynamics in the economy.
This article was first published on October 28, 2015.
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