Earlier this morning (30 March), the central bank of Singapore, Monetary Authority of Singapore (MAS) has drawn back on its exchange rate-based monetary policy, a move that the market has expected in the midst of COVID-19 wracking the world economy.

The SGD has been restored to a neutral stance by MAS. From this, the pace of currency appreciation can be strengthen following the slight reduction as seen in October last year.

The mid-point of the policy band was lowered by MAS in a drastic move for the first time since the April 2009 global financial crisis. However, the width of the band remains unchanged

Since October 2017, the slope of the SGD nominal effective exchange rate (S$NEER) has not been set at zero and in 2018, MAS tightened the policy at both meetings.

By 14 April this year, MAS would implement an unprecedented two-step easing in a half-yearly policy review, according to the unanimous agreement of 11 analysts polled by Bloomberg.

MAS confirmed this lowered level as it stated that “with the deterioration in macroeconomic conditions and expectations of a weaker outlook, the S$NEER has depreciated to a level slightly below the mid-point of the policy band”.

According to official forecasters, Singapore would be pushed into a recession of between 4 per cent and 1 per cent this year, as was reaffirmed by MAS.

Core inflation and headline inflation forecasts have been cut to between -1 per cent and 0 as “disinflationary pressures are expected to broaden” despite the resumption of disrupted shipping and factory pushing up the prices of some imported items.

The steep downgrade from the core and headline inflation forecasted earlier of between 0.5 per cent and 1.5 per cent denotes the most recent negative outlook of the economy.

MAS adopts core inflation as the key rate for monetary policy to uphold its mandate in maintaining medium-run price stability. Core inflation excludes accommodation and private road transport costs.

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