Central Banks

Singapore's central bank leaves monetary policy steady

Singapore's central bank left monetary policy steady on Thursday in a widely expected decision.

Instead of interest rates, the Monetary Authority of Singapore (MAS) uses the currency exchange rate to set monetary policy because of the city-state's small and open economy.

Leslie Shaffer

MAS maintained the rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) at zero percent on Thursday, according to its official statement.

"As indicated in the October 2016 monetary policy statement, a neutral policy stance is appropriate for an extended period and should ensure medium-term price stability," MAS said.

The central bank, which holds official policy-setting meetings just twice a year, sets its monetary policy by adjusting an undisclosed trading band for the Singapore dollar based on a basket of currencies weighted to reflect trade levels with the city-state.

Thursday's policy stance was assessed to be appropriate given the subdued outlook for growth and inflation, MAS said.

Singapore's first-quarter gross domestic product shrank 1.9 percent from the previous three months on an annualized basis, official data on Thursday showed. Meanwhile, core inflation is expected to rise from 0.9 percent in 2016 to average 1–2 percent in 2017, MAS stated.

The central bank also noted the local dollar's recent strength.

"The S$NEER has fluctuated around a strengthening trend, appreciating from below the mid-point of the policy band to the upper half of the band. The appreciation from late February 2017 reflected, in part, broad-based U.S. dollar weakness," MAS said on Thursday.