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Singapore Central Bank Set to Join Global Policy Easing Tide

Michelle Jamrisko and Tomoko Sato
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Singapore’s central bank will probably ease monetary policy for the first time in more than three years as a global slowdown continues to weigh on the export-reliant economy.

A majority of the economists surveyed by Bloomberg predict the Monetary Authority of Singapore will reduce the slope of its currency band by 50 basis points on Monday, implying a more gradual pace of appreciation in the local dollar. The MAS uses the exchange rate, rather than interest rates, as its main policy tool. ​

Central banks around the world are loosening policy to guard against the global slowdown and escalating U.S.-China trade tensions. In Singapore, authorities are taking a gradual approach, as they monitor risks and watch the job market closely.

“The global slowdown continues to weigh on the domestic sector, with significant implications on the labor market,” Irvin Seah, senior economist at DBS Group Holdings Ltd. in Singapore, said in a research note. “A robust fiscal budget is expected early next year to render support for the economy while the MAS will most likely ease the monetary policy stance moderately.”

DBS analysts are among those seeing a 50-point reduction in the slope of the currency band on Monday.

The downturn may prompt a more aggressive move by the MAS, according to eight of 22 economists in the Bloomberg survey. They predict the central bank will move to a flat slope -- meaning it won’t seek an appreciation in the exchange rate.

What Bloomberg’s Economists Say

“Singapore’s economy faces the weakest growth prospects since the global financial crisis, whether or not a technical recession is averted in 3Q. That’s likely to spur the monetary authority to ease policy. ... We expect the slope to be lowered to zero.”

--Tamara Mast Henderson, Asean economist

Click here to read the full report

That action may prompt the Singapore dollar to weaken, according to analysts like Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. The currency is down about 0.8% against the U.S. dollar so far this year, having strengthened Friday by 0.1% to 1.3743 as of 1:45 p.m. local time.

For now, it looks like the economy narrowly avoided a technical recession. After contracting an annualized 3.3% in the second quarter, the median estimate in a Bloomberg survey of economists is for gross domestic product to expand 1.2% on a quarterly basis, and gain 0.2% from a year ago. The government will publish advanced GDP data on Monday.

Manufacturing remains the hardest-hit sector, while other parts of the economy are still relatively healthy and retrenchments haven’t yet significantly increased. Industrial output plunged in August by the most in almost four years, with electronics posting its worst production since 2012.

The MAS left its policy settings unchanged in April after tightening twice in 2018. The central bank adjusts the slope, width, and center of the currency band to adjust the pace of appreciation or depreciation of the exchange rate. Tinkering with the width or center is a much rarer, and more aggressive, move.​

​Despite the U.S. and China re-igniting talks to find common ground toward a trade deal, Singapore is among economies across Asia having to prepare for the worst between their two biggest trading partners.

“Singapore, being an export-oriented economy and a price-taker, remains vulnerable to the ongoing U.S.-China trade tensions,” analysts from United Overseas Bank Ltd. in Singapore said in a research note. “Singapore’s output gap has turned negative since the fourth quarter of 2018 and is at risk of remaining so for the rest of 2019.”

(Updates with Singapore dollar in seventh paragraph)

--With assistance from Ruth Carson.

To contact the reporters on this story: Michelle Jamrisko in Singapore at mjamrisko@bloomberg.net;Tomoko Sato in Tokyo at tsato3@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Michael S. Arnold

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