MAS preserves Singapore's policy band as inflation remains low

It is to ensure medium-term price stability.

The Monetary Authority of Singapore has maintained its stance on the current policy band for the Singapore dollar at 0% as the city-state continues to bear with the slow growth of economy and inflation.

In a statement, the central bank said, "MAS will therefore maintain the rate of appreciation of the S$NEER (nominal effective exchange rate) policy band at 0%. The width of the policy band and the level at which it is centred will be unchanged.”

The announcement fell under the market consensus, with 21 out of 23 economists surveyed by Bloomberg expected MAS to maintain its current stance as the city-state probably wants to dodge an economic recession.

The central bank manages the economy through currency rather than by setting interests rates due to Singapore's reliance on exports. It lets the Singapore dollar rise or fall against the currencies of its major trading partners and competitors within an undisclosed trading band based on its NEER.

MAS claimed that this neutral policy stance will be needed for an extended period of time to ensure medium-term price stability.

"The current policy band provides some flexibility for the S$NEER to accommodate the near-term weakness in inflation and growth. MAS will continue to closely monitor economic developments as they evolve over the coming months," it stated.

To recall, the central bank flattened the S$NEER slope to 0% in April as it forecast core inflation to pick up more slowly than expected over 2016.

MAS said growth in Singapore economy has already weakened and is not expected to pick up significantly in 2017.

Earlier, Ministry of Trade and Industry revealed that Singapore economy grew by 0.6% YoY for 3Q16, sharply lower than what economists estimated at 1.7%.

Meanwhile, MAS forecast core inflation, which serves as its key policy consideration, to grow only gradually next year.

"Over the medium term, core inflation is still expected to trend towards but average slightly below 2%," the central bank stressed.

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