Monetary Authority of Singapore Signals Future Easing Plans

Monetary Authority of Singapore Adjusts Policy

Recently, the Monetary Authority of Singapore (MAS) has made headlines by adjusting its monetary policy to lean towards easing. This shift comes in light of low inflation rates and moderate economic growth, prompting analysts at Capital Economics to predict further relaxations in policy in the months ahead.

Background of MAS and Monetary Policy

The MAS employs the nominal effective exchange rate (S$NEER) against a diverse basket of currencies to guide its monetary policy. Since April 2023, the MAS has maintained a steady course following a period of stringent tightening measures that began in October 2021.

Details of the Recent Adjustment

On this occasion, the MAS decided to slightly reduce the slope of the S$NEER policy band. While the width and midpoint of the band were kept unchanged, this move was in line with expectations that Capital Economics had alluded to since October. A majority of analysts surveyed by Bloomberg also anticipated this adjustment ahead of the MAS's meeting.

Assessment of Inflation and Economic Growth

The central bank has described its recent policy change as a "measured" approach, aligning with its aim to foster a "modest and gradual appreciation path" for the trade-weighted exchange rate. The MAS expressed optimism regarding its ability to manage inflation effectively, highlighting stability in the underlying price pressures within Singapore's economy.

Impact of Reduced Inflation Rates

One of the key ingredients in the MAS's confidence for adopting a less aggressive currency appreciation stance is the marked decline in Singapore's inflation rates. Core inflation was recorded at 1.8% year-on-year in December, with a seasonally adjusted three-month annualized rate of only 1.0% during the latter half of that year.

Future Inflation Projections

According to analysts at Capital Economics, a decrease in global commodity prices and a slowdown in nominal wage growth are likely to keep inflationary pressures in check. They include forecasts that with these domestic and international factors, inflation in Singapore is expected to remain subdued.

Economic Growth Trends

Weak economic growth is another factor contributing to predictions of further monetary easing. The Gross Domestic Product (GDP) growth rate slid to a mere 0.1% quarter-on-quarter in the last quarter of the previous year.

Global Demand and Future Implications

Capital Economics foresees that growth will continue to lag behind the trend in the near future. They point to sluggish global demand, which will likely have repercussions on Singapore’s export-driven economy. Additionally, a slowdown in wage and employment growth could negatively affect domestic consumption in the coming quarters.

Forecasting Politicies

With persistent low inflation and weak growth expectations, alongside the MAS's favorable outlook on inflation stability, Capital Economics predicts another potential round of policy easing by the central bank in the coming months.

Frequently Asked Questions

What recent adjustment did the MAS make to its monetary policy?

The MAS reduced the slope of the S$NEER policy band while keeping the width and midpoint unchanged, signaling a move towards easing.

What is the current inflation rate in Singapore?

As of December, Singapore's core inflation was reported at 1.8% year-on-year, indicating a decrease in inflationary pressures.

What does Capital Economics predict regarding future monetary policy?

Capital Economics forecasts another round of monetary easing by the MAS in the upcoming months due to low inflation and weak growth.

How has Singapore's GDP growth performed recently?

The GDP growth rate decelerated significantly to 0.1% quarter-on-quarter in the fourth quarter, indicating sluggish economic performance.

What factors are influencing Singapore's economic conditions?

Weak global demand and a slowdown in wage growth are impacting Singapore's export-oriented economy, potentially dampening domestic demand.

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