Labourers on gondola work on a newly built apartment building in Singapore on January 26, 2015. (AFP Photo/ Roslan Rahman)

Singapore Joins Global Monetary Easing, Spurs Currency Drop


JANUARY 28, 2015

Singapore unexpectedly eased monetary policy, 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, which uses the exchange rate as its main policy tool, said in an unscheduled statement Wednesday it will seek a slower pace of appreciation against a basket of currencies. It cut the inflation forecast for 2015, predicting prices may fall as much as 0.5 percent.

The move was the first emergency policy change since one following the Sept. 11, 2001 attacks for the MAS — which only has two scheduled policy announcements a year — reflecting how the plunge in oil 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.

“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.”

ECB action

The European Central Bank announced quantitative easing plans this month while Canada, Denmark and India cut interest rates. More may come -- the Bank of Japan chief said the country may need to get creative in any further monetary stimulus and Thai policy makers face growing pressure to lower borrowing costs.

Countries seeking cheaper currencies are running up against a limited number of major economies where policy makers are at ease with appreciation. The exceptions include the US and Switzerland, which abandoned its exchange-rate cap this month. In Australia, where an acceleration in core inflation sent the local currency higher Wednesday, the central bank has signaled it would prefer a weaker exchange rate.

Singapore’s dollar fell 0.9 percent to S$1.3512 per US dollar as of 2:11 p.m. local time, 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.

Significant shift

The MAS will probably weaken the Singapore dollar “quite solidly” and the currency may 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, 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.

Singapore’s consumer prices fell for a second month in December for the first time since 2009, according to data compiled by Bloomberg. The central bank cut its 2015 inflation forecast to a range of negative 0.5 percent to 0.5 percent, from the October prediction of 0.5-to-1.5 percent.

Follows India

Today’s decision follows an unscheduled rate cut by India this month and was Singapore’s first unplanned monetary policy change since one in the aftermath of the Sept. 11, 2001 terrorist attacks in the US The central bank last eased policy in October 2011.

Singapore guides the local dollar against a basket of currencies within an undisclosed band and adjusts the pace of appreciation or depreciation by changing the slope, width and center of the band.

The central bank will reduce the slope of the policy band for the island’s dollar, with no change to its width and the level at which it is centered, it said. Singapore will keep a “modest and gradual appreciation” in its currency policy band, the authority said.

“Singapore is experiencing a profound disinflation dynamic that in the absence of recovering domestic or external demand could morph into more problematic deflation,” said Glenn Maguire, a Singapore-based economist at Australia & New Zealand Banking Group. “We continue to assess Singapore as a growth underperformer in 2015.”

Policy cycle

The MAS is sticking to its main policy cycle of scheduled statements in April and October, even as it is always prepared to conduct policy reviews in between, it said in a separate statement.

“I don’t expect a huge boost to growth from this move,” said Michael Wan, a Singapore-based economist at Credit Suisse. “Whether it arrests disinflation, I think a bit, but the bigger drivers are still what happens in the global commodity markets and especially oil.”

The Singapore economy remains on track to grow 2 percent to 4 percent in 2015, the central bank said. Gross domestic product expanded an annualized 1.6 percent in the three months to Dec. 31 from the previous quarter, less than analysts estimated, after its manufacturing industry weakened with slowing growth in China and an uneven global recovery.