Singapore Eases Monetary Policy As Economy Faces Severe Recession

Singapore central bank eased its monetary policy by reducing the slope of its policy band as the city-state is expected to enter a deep recession due to the interruptions to economic activity caused by the outbreak of coronavirus, or COVID-19.

The Monetary Authority of Singapore, said on Monday, that the bank will adopt a zero percent per annum rate of appreciation of the policy band starting at the prevailing level of the S$NEER. 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 percent appreciation slope of the policy band going forward, thus providing stability to the trade-weighted exchange rate,” the bank said.

The MAS applies the exchange rate against a basket of currencies within an undisclosed band as its monetary policy tool.

The bank said the stable monetary policy stance reflects the primary role of fiscal policy in mitigating the economic impact of covid-19.

The virus pandemic has led to a severe contraction in economic activity both in Singapore and globally. The city-state is set enter a recession this year, with GDP growth projected at -4 to -1 percent, the bank said.

Further, the MAS observed that emergence of slack in domestic factor markets would lead to some disinflationary pressures in the economy. Both core inflation and consumer price inflation are expected to average between -1 and 0 percent in 2020.

Even though the outlook for growth and inflation is very downbeat, further loosening is not expected in the months ahead, given the limitations on how much more the MAS can do, Alex Holmes, an economist at Capital Economics, said.

Due to the sharp weakness in the economy, the government unveiled a second stimulus worth S$48 billion last week, with an aim to save jobs, support workers and help the enterprises to overcome immediate challenges. The supplementary budget was in addition to the S$6.4 billion package announced last month.

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