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Wed, Oct 14, 2020 – 8:24 am
SINGAPORE’s central bank kept monetary policy settings unchanged in its semi-annual review on Wednesday, as expected by market watchers.
The neutral position, taken after two consecutive rounds of easing, came as the economy tilted to recover in 2021, but with weak underlying momentum.
Amid the global economic recession of the Covid-19 pandemic, the Monetary Authority of Singapore (MAS) did not modify the width of the band in which the nominal effective exchange rate of the Singapore dollar (SGDNEER) is allowed to float. .
The MAS, which lowered the midpoint of the band and reduced its appreciation rate to zero at the end of March, also left both the center and the slope intact this time.
“As core inflation is expected to remain low, MAS assesses that an accommodative policy stance will remain appropriate for some time,” MAS said in its October policy statement.
“This will complement fiscal policy efforts to mitigate the economic impact of Covid-19 and ensure price stability in the medium term.”
The latest decision came as Singapore’s economy contracted 7% year-on-year in the third quarter, according to estimates from the Ministry of Commerce and Industry, which forecasts a decline of between 5% and 7% for the full year.
Analysts at Citi had stated the previous day that they expected the MAS to remain on hold with monetary policy, as the strong inflows of the Singapore dollar in recent weeks were seen as “reflective of not moderate expectations.”
“Along with the risk of possible changes in US election polls, disappointment over stimulus and / or vaccine timelines, the risk-reward appears to be from favoring a cautious exposure to the SGD (Singapore dollar), in our opinion, “Citi analysts added in a note Tuesday. .
“Having said that, we are aware that despite moderate action in the October 2019 policy review, SGD was quick to resume its superior performance.”
Similarly, Standard Chartered economist Jonathan Koh said: “In the event of a surprise refocusing down the monetary policy band in October, we expect the USD-SGD to trade (around of) 1.5% more in response. By comparison, if MAS leaves monetary policy unchanged, in line with our expectations, we expect a very limited market reaction. “
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