Singapore adopts 2008 crisis policy as growth grinds to halt
Singapore’s central bank unexpectedly eased its monetary stance, adopting a policy last used during the 2008 global financial crisis, as economic growth in the trade-dependent city state ground to a halt.
The Monetary Authority of Singapore moved to a neutral policy of zero per cent appreciation in the exchange rate, causing the local dollar to slide and dragging down currencies across Asia-Pacific.
The announcement came two days after the International Monetary Fund warned of the risk of negative shocks to the global economy.
“The MAS is delivering a strong message by returning policy to the post-Great Financial Crisis settings,” Sean Callow, a currency strategist with Westpac Banking Corp, said by email. “The surprise move indicates a gloomy outlook for regional trade.”
As Asia’s financial hub, Singapore is feeling the effects of the global downturn and China’s weakening economy.
Monetary easing follows an expansionary budget announced by Finance Minister Heng Swee Keat last month, indicating how severe authorities view the slowdown as businesses shut and growth in bank loans contract.
“It seems that Singapore is using both fiscal policy and the exchange rate to address the situation,” said Weiwen Ng, an economist with Australia & New Zealand Banking. “We may not be at the end of the easing cycle.”
Gross domestic product posted zero expansion on an annualized basis in the first quarter compared with the previous three months, the trade ministry said in a separate report yesterday.
The last time the MAS shifted its currency policy to zero appreciation was in October 2008, when the economy was in a recession. Thursday’s move was the bank’s second unexpected decision in less than 16 months, following a move in January last year to combat the threat of deflation.
The IMF warned on Tuesday that a prolonged period of slow global growth has left the world economy more exposed to negative shocks. The fund is predicting 1.8 per cent expansion for Singapore this year, compared with the government’s projection of 1 per cent to 3 per cent.
Singapore’s services industry, which makes up about two-thirds of the economy, contracted an annualised 3.8 per cent in the first quarter from the previous three months, the first decline since the first quarter of 2015.
Manufacturing and construction rebounded strongly in the quarter, expanding 18.2 per cent and 10.2 per cent respectively.
“The economy remains mired in an extended spell of deflation and steadily lower growth,” said Andrew Wood, an economist with BMI Research in Singapore. The currency adjustment was needed because “Singapore’s competitiveness has taken a hit,” he said.