Singapore’s central bank devalued its currency less aggressively than expected in a monetary policy review yesterday, signaling growing confidence that the global economy is bottoming out.
The Monetary Authority of Singapore repeated what it had done in previous downturns in 2002 and 2003 by shifting the center of the secret trade-weighted band for the Singapore dollar down to the existing level of the exchange rate basket, effectively a devaluation.
Based on their estimates of the policy band the Singapore dollar is managed in, economists said the currency might have been devalued by 1.5 percent to 2 percent.
Yesterday’s monetary easing came as Singapore’s economy contracted a record 11.5 percent from a year earlier in the first quarter of this year, more than a market median forecast of an 8.8 percent slump. The government expects the economy to shrink between 6 percent and 9 percent this year.
The bank said the economy is likely to remain below its potential growth rate until a decisive recovery in exports.
The policy easing appeared inadequate to most analysts. JPMorgan Chase strategist Claudio Piron said the Monetary Authority of Singapore had been conservative.
“There had been some expectation that the re-centering would be as much as a 400 basis points depreciation,” he said.
Others pointed to subtle hints of optimism in the central bank’s statement, such as the allusions to Singapore’s “sound fundamentals,” and references to a pick up in leading indicators and improved consumption in the US.
“The statement was somewhat optimistic with the usual dose of cautiousness,” said Emmanual Ng, strategist at OCBC Bank.
Other data yesterday meanwhile suggested Singapore’s open economy — exports including re-exports are double the total economic output — could be nearing a trough.
Non-oil exports (NODX) fell 17 percent from a year earlier last month after a record 35 percent plunge in January and a 24 percent fall in February. Shipments to China jumped 14 percent last month.
“Although we are seeing some faint heartbeats in the Singapore economy with better-than-expected March NODX numbers, we have not seen the bottom yet,” said Song Seng Wun (宋誠煥), economist at Malaysian bank CIMB in Singapore. “With inflation easing and external demand fragile, the shift in policy remains appropriate.”
“Given all these horrendous numbers, this policy change is not a big surprise. It is reflecting the free fall in external demand,” Song said.
The Singapore dollar, which has been emerging Asia’s second-worst performing currency this year, strengthened to a two-month high of S$1.497 against the US dollar from S$1.515 before the announcement, and was trading at S$1.5005 by 0600 GMT.