MAS flattens currency band slope

SINGAPORE: Singapore’s central bank eased monetary policy yesterday as the city-state, seen as a bellwether for the health of global trade, heads for a deep recession due to the coronavirus pandemic.

The easing echoes moves made by other countries and comes after data last week showed the city-state suffered its sharpest contraction in the first quarter since the global financial crisis.

The Monetary Authority of Singapore said that it had flattened the slope of the band at which the local dollar is allowed to move against a basket of currencies of its major trading partners — effectively weakening the local unit.

Instead of using interest rates, tradereliant Singapore manages monetary policy by letting the local dollar rise or fall against a currency basket of its trading partners.

“Major uncertainty remains. The recovery in the global economy will depend on the epidemiological course of the pandemic and the efficacy of policy responses,” the central bank said.

MAS was supposed to issue its next policy statement in April but brought it forward as the country reels from the economic impact of the virus.

The financial hub is one of the world’s most open economies, and is usually hit hardest and earliest during any global shock.

Gross domestic product (GDP) shrank by 2.2% in the first quarter compared with the previous year — the worst decline since the 2009 financial crisis, according to advance estimates released last week by the trade ministry.

The MAS said its new policy settings provided “stability” to the exchange rate but added fiscal policy would be the main tool to mitigate the economic impact of the pandemic.

The city-state has spent billions in virus-related relief for businesses and households already this year, equivalent to almost 11% of its GDP.

Research consultancy Capital Economics said the move highlighted the limits of central bank policy in weathering the downturn and that further loosening of monetary settings was unlikely in the months ahead.

But others said the central bank still had room to ease when it next meets in October, if not before.

The Singapore dollar, which has already fallen nearly 6% this year, jumped as much as 0.5% against the dollar after the announcement.

“The overall focus has been to emphasise a message of stability in the Singapore dollar,” said Moh Siong Sim, currency analyst at the Bank of Singapore.

“In the past, wherever there’s such a move, it’s taken as a prelude to a series of easings, but I think this time around the focus is more on the fiscal policy to cushion the blow and the exchange rate is more to release the pressure somewhat.”