Singapore Central Bank Signals More Easing as Growth Risks Mount
Data Monday showed the economy narrowly missed falling into recession in the third quarter.
(Bloomberg) -- Singapore’s central bank signaled it’s ready to adjust monetary policy further after easing Monday for the first time since 2016 as risks to the economic growth outlook persist.
The Monetary Authority of Singapore, which uses the exchange rate as its main policy tool, reduced “slightly the rate of appreciation” of the currency band and said it’s prepared to “recalibrate monetary policy” if prospects for inflation and growth weaken significantly.
Data Monday showed the economy narrowly missed falling into recession in the third quarter, but the MAS was downbeat about growth prospects and sees inflation remaining benign. The U.S.-China trade war has weighed heavily on the export-reliant city state, with manufacturing taking the brunt of the pain.
“We thought the final sentence in the statement -- that MAS ‘is prepared to recalibrate monetary policy should prospects for inflation and growth weaken significantly’ -- is telling of its intentions,” said Terence Wu, a currency strategist at Oversea-Chinese Banking Corp. in Singapore. “For now, we do not rule out a further reduction of slope to zero appreciation in the next meeting.”
The Singapore dollar gained as much as 0.4% to S$1.3679 against the U.S. dollar Monday. The Straits Times Index climbed 0.5% as of 10:15 a.m. in Singapore.
The monetary policy decision was predicted by 14 of the 22 economists surveyed by Bloomberg, with the remainder projecting a more aggressive move to a zero-appreciation posture for the currency band. The MAS held policy in April after tightening twice last year.
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“If the U.S. and China can avoid a further escalation in tariffs, we expect the MAS to leave policy on hold at its next regularly-scheduled meeting in April. Further escalation, though, might prompt an inter-meeting easing. Recent signs of a truce in the U.S.-China trade war may have persuaded the central bank to retain a bit of policy ammunition, rather than going “all-in” with a reduction of its currency band to zero.”
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Tamara Mast Henderson, Asean economist
Central bankers globally are taking a more dovish stance as trade tensions weigh on growth and as manufacturing weakness threatens to spill over into services sectors. In Singapore, authorities have taken a gradual approach as they monitor risks and keep a close watch on labor-market indicators that so far have stayed resilient.
An early reading of gross domestic product data Monday showed the economy grew an annualized 0.6% in the third quarter from the previous three months, rebounding from a contraction of 2.7%. The median estimate in a Bloomberg survey of economists was for growth of 1.2%. Compared with a year ago, GDP rose 0.1%, unchanged from the second quarter.
“GDP numbers, despite skirting a technical recession, do not make for an upbeat read,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore. “The manufacturing recession continues. The outlook is at best hazy, if not gloomy.”
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Singapore’s growth is expected to pick up modestly next year, “although this projection is subject to considerable uncertainty in the external environment,” the MAS said. These are its latest projections for inflation and growth:
- GDP growth will likely be around the midpoint of the 0-1% forecast range in 2019. The output gap has turned “slightly negative” and is expected to persist into 2020
- Core inflation is expected to come in at the lower end of the 1-2% range in 2019 and average 0.5%-1.5% in 2020
- All-items CPI is projected to be around 0.5% this year and average 0.5-1.5% in 2020
“We think the MAS’ core inflation forecast for 2020 suggests the door for further easing is open, if needed,” said Divya Devesh, head of Southeast and South Asia currency research at Standard Chartered Plc in Singapore.
The MAS guides the local dollar against a basket of its counterparts and adjusts the pace of its appreciation or depreciation by changing the slope, width and center of a currency band. It doesn’t disclose details of the basket, or the band or the pace of appreciation or depreciation.
--With assistance from Tomoko Sato, Chua Baizhen, Niluksi Koswanage, Stephanie Phang, Melissa Cheok, Joyce Koh and Chester Yung.
To contact the reporters on this story: Michelle Jamrisko in Singapore at mjamrisko@bloomberg.net;Ruth Carson in Singapore at rliew6@bloomberg.net
To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Michael S. Arnold
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