Singapore's central bank unexpectedly eased policy on Thursday after growth stalled from the first quarter, darkening the outlook to the trade-dependent economy and triggering the worst fall inside the local dollar in eight months.
The move may come as the affluent city state has struggled to motor on inside face of anaemic exports, depressed external demand and low inflation - a toxic combination containing seen global policy makers scrambling to bring back momentum through aggressive easings.
In its third policy easing in 15 months, the Monetary Authority of Singapore (MAS) stated it will set the pace of appreciation from the Singapore dollar NEER policy band at zero percent - starting on Thursday - and shift to some neutral policy stance.
It marked once the MAS has chosen 'neutral' ever since the global economic crisis, underscoring deteriorating world growth that's spread turmoil in asset markets inside the past month or two and prompted central banks from Europe to Japan to China to boost policy support.
The MAS, which manages monetary policy via changes on the exchange rate as opposed to interest rates because trade flows dwarf the $290 billion economy, previously maintained a stance of the "modest and gradual" appreciation from the Singapore dollar.
"It's worth it to read, and eye-catching, which the MAS adjusted back to post-global financial meltdown settings, and sends a robust message around the weak external environment," said Sean Callow, senior currency strategist at Westpac in Sydney.
"As one with the world's most trade-sensitive economies, Singapore's concern spanning a 'less favourable external environment' needs to be noted through the likes" of South Korea, Australia and New Zealand, Callow said.
The worsening external conditions over recent months in addition have prompted the U.S. Federal Reserve to signal a much more measured strategy to future rate increases.
The MAS eased monetary policy twice this past year, once in a unscheduled policy review in January 2015.
DARKENING OUTLOOK, MORE EASING?
"The Singapore economy is projected to flourish at a modest pace in 2016 than envisaged inside October policy review," the MAS said in the semiannual policy statement.
"Core Inflation will rise during this year in a milder pace than earlier anticipated," it said.
Joseph Incalcaterra, economist at HSBC in Hong Kong, said the central bank's subdued inflation view opens the door to more policy easing.
"The MAS will continue to be data dependent," he stated.
Official data released on Thursday indicated that Singapore's economy neglected to post growth inside first quarter through the previous 3 months - gloomy figures that follow 2.0 percent boost in 2015, the weakest in six years.
Singapore's manufacturing sector in addition has taken winner from falls in global oil prices, that contain dampened requirement for oil rigs built with the city-state's large rig industry.
SINGAPORE DOLLAR TUMBLES
A tastes analysts in the Reuters survey had predicted which the MAS would keep monetary policy unchanged, though some had expected an easing as a result of weak exports as well as a depressed manufacturing sector.
The central bank decision was pounced on by Singapore dollar bears, sending it right down to 1.3644 around the U.S. dollar - its weakest since March 29 and also the biggest fall since August recently.
Analysts expect more downside with the Singapore currency due to the weak outlook for growth plus a slowdown in China, the town state's biggest export market.
Worryingly, domestic borrowing costs climbed after Thursday's policy move, together with the 1-year swap rate rising 8 basis points to at least one.42 percent.
A softer Singapore dollar can put upward pressure on local rates of interest as investors seek higher yields as compensation for holding the weakening currency.
"The overall dish is that we expect Singapore's economy to grow in a fairly sluggish rate of just 2 percent this season and next," said Daniel Martin, senior economist at Capital Economics.
"In the short-term growth will probably be held back by rising local mortgage rates, which track the Fed funds rate closely."
($1 = 1.3615 Singapore dollars)
The move may come as the affluent city state has struggled to motor on inside face of anaemic exports, depressed external demand and low inflation - a toxic combination containing seen global policy makers scrambling to bring back momentum through aggressive easings.
In its third policy easing in 15 months, the Monetary Authority of Singapore (MAS) stated it will set the pace of appreciation from the Singapore dollar NEER policy band at zero percent - starting on Thursday - and shift to some neutral policy stance.
It marked once the MAS has chosen 'neutral' ever since the global economic crisis, underscoring deteriorating world growth that's spread turmoil in asset markets inside the past month or two and prompted central banks from Europe to Japan to China to boost policy support.
The MAS, which manages monetary policy via changes on the exchange rate as opposed to interest rates because trade flows dwarf the $290 billion economy, previously maintained a stance of the "modest and gradual" appreciation from the Singapore dollar.
"It's worth it to read, and eye-catching, which the MAS adjusted back to post-global financial meltdown settings, and sends a robust message around the weak external environment," said Sean Callow, senior currency strategist at Westpac in Sydney.
"As one with the world's most trade-sensitive economies, Singapore's concern spanning a 'less favourable external environment' needs to be noted through the likes" of South Korea, Australia and New Zealand, Callow said.
The worsening external conditions over recent months in addition have prompted the U.S. Federal Reserve to signal a much more measured strategy to future rate increases.
The MAS eased monetary policy twice this past year, once in a unscheduled policy review in January 2015.
DARKENING OUTLOOK, MORE EASING?
"The Singapore economy is projected to flourish at a modest pace in 2016 than envisaged inside October policy review," the MAS said in the semiannual policy statement.
"Core Inflation will rise during this year in a milder pace than earlier anticipated," it said.
Joseph Incalcaterra, economist at HSBC in Hong Kong, said the central bank's subdued inflation view opens the door to more policy easing.
"The MAS will continue to be data dependent," he stated.
Official data released on Thursday indicated that Singapore's economy neglected to post growth inside first quarter through the previous 3 months - gloomy figures that follow 2.0 percent boost in 2015, the weakest in six years.
Singapore's manufacturing sector in addition has taken winner from falls in global oil prices, that contain dampened requirement for oil rigs built with the city-state's large rig industry.
SINGAPORE DOLLAR TUMBLES
A tastes analysts in the Reuters survey had predicted which the MAS would keep monetary policy unchanged, though some had expected an easing as a result of weak exports as well as a depressed manufacturing sector.
The central bank decision was pounced on by Singapore dollar bears, sending it right down to 1.3644 around the U.S. dollar - its weakest since March 29 and also the biggest fall since August recently.
Analysts expect more downside with the Singapore currency due to the weak outlook for growth plus a slowdown in China, the town state's biggest export market.
Worryingly, domestic borrowing costs climbed after Thursday's policy move, together with the 1-year swap rate rising 8 basis points to at least one.42 percent.
A softer Singapore dollar can put upward pressure on local rates of interest as investors seek higher yields as compensation for holding the weakening currency.
"The overall dish is that we expect Singapore's economy to grow in a fairly sluggish rate of just 2 percent this season and next," said Daniel Martin, senior economist at Capital Economics.
"In the short-term growth will probably be held back by rising local mortgage rates, which track the Fed funds rate closely."
($1 = 1.3615 Singapore dollars)
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