SINGAPORE – The central bank here unexpectedly eased monetary policy, sending the Singapore dollar to its weakest since 2010 as the country joined global policy makers in shoring up growth amid dwindling inflation.
Traffic flows in front of the skyline in Singapore. The central bank here unexpectedly eased monetary policy, sending the Singapore dollar to its weakest since 2010. (Bloomberg photo)
The Monetary Authority of Singapore, which uses the currency as its main policy tool, said it will reduce the slope of the policy band for the island's dollar in an unscheduled policy statement Wednesday. It also cut the inflation forecast for 2015, predicting prices may fall as much as 0.5%.
"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."
Singapore becomes at least the ninth economy to ease policy this month as global price pressures evaporate with an oil slump, after the European Central Bank announced quantitative easing plans 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.
Singapore's dollar fell 0.9% to S$1.3513 per US dollar as of 10.18am local time, the weakest since September 2010. The currency has fallen almost 6% 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 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.
"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. "MAS has assessed that it is appropriate to adjust the prevailing monetary policy stance."
The central bank 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 centre of the band. Singapore's consumer prices fell for a second straight month in December.
Singapore will keep a "modest and gradual appreciation" in its currency policy band, the central bank said. It made no change to the width and level at which it is cantered.
"This measured adjustment to the policy stance is consistent with the more benign inflation outlook in 2015 and appropriate for ensuring medium-term price stability in the economy," the MAS said.