Singapore to slow appreciation of currency

The Monetary Authority of Singapore said Wednesday it would reduce the slope of the Singapore Dollar Nominal Effective Exchange Rate policy band while maintaining its modest and gradual appreciation path of the Singapore dollar in 2015.

In its latest monetary policy statement, MAS said global oil prices have fallen sharply, which resulted in overall import prices declining, however, the underlying cost pressures stemming from a tight labour market have remained, therefore, the pass- through to consumer prices is expected to be moderate.

MAS will therefore continue with the policy of a modest and gradual appreciation of the Singapore Dollar Nominal Effective Exchange Rate policy band. "However, the slope of the policy band will be reduced, with no change to its width and the level at which it is centred." MAS said.

"This measured adjustment to the policy stance is consistent with the more benign inflation outlook in 2015 and appropriate for ensuring medium-term price stability in the economy."

The Singapore Dollar Nominal Effective Exchange Rate has generally fluctuated over the last three months. However, MAS said the movements have been relatively muted as the depreciation of the Singapore dollar against the U.S. dollar was partly offset by the appreciation of the Singapore dollar against the Malaysian ringgit, euro and Japanese yen.

Looking ahead, MAS said the global economy continues to grow at an uneven pace across countries, and against this backdrop, the mixed outlook for the global economy will continue to weigh on the external-oriented sectors while the domestic-oriented sectors should stay broadly resilient. Therefore, the growth forecast for the Singapore economy in 2015 remains at 2 to 4 percent.

However, the outlook for inflation has shifted significantly due to the decline in global oil prices. At the same time, the extent to which businesses will pass on accumulated costs to consumer prices could be somewhat constrained in the near term by the moderate economic growth environment. Car prices and imputed rentals will also further dampen overall inflationary pressures.

Taking all these developments into account, MAS revised its inflation forcasts for 2015. CPI-All Items inflation in 2015 is projected to come in at -0.5 to 0.5 percent from the 0.5 to 1.5 percent expected in October last year. Meanwhile, the MAS core inflation, which excludes accommodation and private road transport costs, is expected to be at 0.5 to 1.5 percent this year, down from the earlier forecast range of 2 to 3 percent. Endi