'Sufficient room’ within policy band for easing in line with coronavirus economic impact: MAS
SINGAPORE: While its monetary policy stance remains unchanged, there is “sufficient room” within the policy band to accommodate an easing of the Singapore dollar exchange rate in line with weakening economic conditions brought about by the outbreak of a novel coronavirus around the world, said the Monetary Authority of Singapore (MAS) on Wednesday (Feb 5).
This as the Singapore dollar nominal effective exchange rate (S$NEER) “has been fluctuating near the upper bound of the policy band” since the central bank eased monetary policy last October, it added in a statement issued in response to media queries.
The Singapore dollar was last seen at 1.3802 against the US dollar, down 0.7 per cent, at 4.50pm. Earlier in the day, it fell as much as 0.9 per cent to a four-month low of 1.3824 against the greenback.
READ: Wuhan virus to hit Singapore’s tourism sector, but too soon to assess impact on overall economy: Experts
Unlike most central banks that target the interest rate, the MAS uses the exchange rate as its main policy tool.
This refers to the S$NEER – the exchange rate of the Singapore dollar managed against a trade-weighted basket of currencies from Singapore’s major trading partners.
The S$NEER is allowed to float within an unspecified band. Should it go out of this band, the MAS steps in by buying or selling Sing dollars.
The central bank also changes the slope, width and mid-point of this band when it wants to adjust the pace of appreciation or depreciation of the local currency based on assessed risks to Singapore’s growth and inflation.
It announces these changes at its two scheduled policy meetings in April and October.
Last October, MAS reduced slightly the rate of appreciation of the S$NEER policy band, marking its first easing move since April 2016.
With the S$NEER “fluctuating near the upper bound of the policy band since then”, the central bank said there is “therefore sufficient room in the band for the S$NEER to ease in line with any weakness in the Singapore economy in the coming months”.
MAS added that it is “monitoring economic developments closely”.
Its next policy review remains as scheduled in April.
Experts said Wednesday’s statement is likely aimed at quelling recent market speculation about a possible easing, or even an off-cycle surprise, by the MAS.
“There’s been some speculation that they may ease policy but I think the statement clarified that at this juncture, there is no pressure for them to surprise with an inter-meeting move before April,” said DBS forex strategist Philip Wee.
“There’s been a panic attack in the markets but at this point, they don’t see it leading into a heart attack in the economy,” he added.
Experts said this ties in with the sentiment among most global central banks.
Last week, chairman of the US Federal Reserve Jerome Powell had said that while the deadly virus outbreak presents a potential risk for the global economy, “the situation is really in its early stages and it's very uncertain about how far it will spread and what the macro-economic effects will be”.
“It’s a reminder that the situation is still playing out and like many other central banks that were asked about the virus, it’s still about watching and seeing how it goes,” said CIMB Private Banking economist Song Seng Wun.
Policymakers here will need more time to assess the actual economic fallout from the outbreak of the novel coronavirus, experts said.
Besides, help could come in the form of fiscal support, and as early as the Budget on Feb 18, they added.
Deputy Prime Minister Heng Swee Keat had over the weekend indicated a “strong” Budget that would include targeted help for the directly-affected transport and tourism sectors.
Already, the first round of such measures have been announced, such as waiving licence fees for hotels, travel agents and tour guides.
“The hint has been very strong that there will be a strong relief package for affected industries and firms, so that would be the next milestone to look at,” said OCBC’s head of treasury research and strategy Selena Ling.
“April is still quite far away and a lot can happen between then and now, given how the virus is evolving quite quickly,” she added.