Singapore unexpectedly eased monetary policy yesterday, sending the currency to the weakest since 2010 against the US dollar as the country joined global central banks in shoring up growth amid dwindling inflation.
The Monetary Authority of Singapore (MAS), which uses the exchange rate as its main policy tool, yesterday said in an unscheduled statement that it will seek a slower pace of appreciation against a basket of currencies. It cut the inflation forecast for this year, predicting prices may fall by as much as 0.5 percent.
The move was the first emergency policy change since one following the Sept. 11, 2001, terror attacks on the US for the MAS — which only has two scheduled policy announcements a year — reflecting how the plunge in oil prices has changed the outlook in recent months. Singapore becomes at least the ninth nation to ease policy this month, as officials from Europe to Canada and India contend with escalating disinflation and faltering global growth.
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“They’re essentially trying to stay ahead” by moving before the scheduled April policy review, said Song Seng Wun, an economist at CIMB Research in Singapore. “We’ve already seen so many central banks cut. For Singapore to do such an unscheduled move, it has to be against the backdrop of enormous uncertainty.”
The Singaporean dollar fell 0.9 percent to S$1.3512 per US dollar as of 2:11pm in Singapore, the weakest since September 2010. The currency has fallen almost 6 percent against the US dollar in the past three months, the third-biggest loser among 11 most-traded Asian currencies tracked by Bloomberg.
The MAS will probably weaken the Singaporean dollar “quite solidly,” and the currency might drop to about S$1.4 against the US dollar by the end of March, said Tsutomu Soma, department manager of the fixed-income business unit at Rakuten Securities.
While the exchange rate has weakened against the US dollar, it has gained against the ringgit, euro and yen in the last three months, the central bank said.
“Since the last Monetary Policy Statement in October [last year], developments in the global and domestic inflation environment have led to a significant shift in Singapore’s CPI inflation outlook for 2015,” the MAS said. “The global economy continues to grow at an uneven pace” and falling oil prices have curbed inflation, it said.
Last month, Singapore’s consumer prices fell for a second month for the first time since 2009, according to data compiled by Bloomberg. The central bank cut its inflation forecast for this year to a range of minus-0.5 percent to 0.5 percent, from the October last year prediction of 0.5 percent to 1.5 percent.
Yesterday’s decision follows an unscheduled rate cut by India this month. The Monetary Authority of Singapore last eased policy in October 2011.
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