Singapore Eases Monetary Policy Sharply as Virus Heralds Deep Recession



Fathin Ungku, Anshuman Daga, Aradhana Aravindan and Tom Westbrook | The New York Times

SINGAPORE — Singapore’s central bank aggressively eased monetary policy on Monday as the bellwether economy braced for deflation and a deep recession this year due to the coronavirus pandemic.

The Southeast Asian nation is among the world’s most open economies and seen as a gauge of the health of the global trade. Last week, it posted a sharp decline in first quarter gross domestic product and slashed growth projections.

The Monetary Authority of Singapore (MAS) manages policy through exchange rate settings, rather than interest rates, letting the local dollar rise or fall against currencies of its main trading partners within an undisclosed band.

The widely-expected easing on Monday was the most aggressive since the 2009 financial crisis, flattening the band’s rate of increase and effectively shifting its center lower. It also comes only days after the government unveiled a large fiscal package to soften the outbreak’s hit to the economy.

While the MAS move follows drastic steps by other central banks, it was still not as bold as some in the market had expected, which pushed the local currency <SGD=D3> up slightly.

“We have heard the government talk about the downturn in pretty dire terms, so there was no mistaking that pretty aggressive easing would be required,” Barclays’ economist Brian Tan said, adding he had been expecting a bigger move.

The MAS adjusts its policy via three levers: the slope, mid-point and width of its Singapore policy band, known as the Nominal Effective Exchange Rate, or S$NEER.

The central bank on Monday said it would adopt a zero percent annual appreciation rate for its policy band, starting at the S$NEER’s prevailing level, which is currently just below the band’s mid-point.

Analysts said this amounted to a downwards adjustment of the first two settings, the slope and mid-point, but left the width unchanged.

All nine economists in a Reuters survey this month expected the central bank to ease as policymakers worldwide step up efforts to limit the economic damage from the fast spreading virus.

Most global central banks, including the U.S. Federal Reserve, have cut interest rates to cushion the hit to businesses from the outbreak, while many have also resorted to printing money to prevent their economies from slipping into recession.

The Southeast Asian shipping, travel and finance hub is bracing for the worst recession in its 55-year history and last week lowered its 2020 GDP forecast range to -4% to -1% after a sharp contraction in the first quarter.

While Singapore’s early successful efforts to contain the coronavirus won it praise globally, a recent jump in infections to over 800 has raised some concerns about the local spread.

The central bank on Monday also lowered its official outlook for headline and core inflation to -1% to zero percent for 2020.

The MAS said its new policy settings provided “stability” to the exchange rate but added fiscal policy will be the main tool to mitigate the economic impact of the pandemic.

The city-state has spent billions in virus-related relief for businesses and households already this year, equivalent to almost 11% of its GDP.


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