Singapore’s MAS May Ease Policy Further to Counter Slowing Growth

Singapore’s central bank could loosen monetary policy for a second time this year on Tuesday, but analysts are divided over the magnitude of any easing as authorities contend with slowing growth, a pick up in core inflation and risks of fund outflows.  It’s a delicate balancing act for the Monetary Authority of Singapore (MAS) when it meets for its bi-annual review, with the start of the U.S. Federal Reserve’s tightening cycle expected later this year adding another layer of uncertainty.

On the whole, given slowing growth and benign headline inflation, a further easing in policy is seen as the most likely outcome, according to a majority of 25 economists and currency analysts polled by Reuters.  Singapore’s central bank targets the exchange rate for policy settings instead of interest rates since trade flows dwarf the tiny city-state’s economy. It lets the Singapore dollar rise or fall against the currencies of its main trading partners within a secret trading band based on its nominal effective exchange rate (NEER).

Twelve of the 25 economists polled expect the MAS to lower the mid-point of its currency band next week for the first time since a similar move in April 2009.  Of the remaining 13, six see a widening of the Singapore dollar’s policy band as their base scenario.