Monetary policy eased to a neutral stance yesterday because of rapid cooling of Singapore's trade-driven economy, which tumbled into recession in the first half of the year.
In its annual policy statement, the Monetary Authority of Singapore (MAS) said inflationary pressures were subsiding as external demand declined, allowing it to move away from a gradual appreciation of the local dollar. The move came just two days after the government released figures showing that the economy posted two successive quarterly contractions between January and June.
'The economy is technically in recession . . . MAS has therefore shifted to a neutral exchange rate policy stance,' the de facto central bank said.
To control inflation over the medium-term, the MAS manipulates the value of the Singapore dollar against a basket of currencies from its leading trading partners. It holds the local currency within a pre-set band, intervening if necessary.
'Against the backdrop of a weaker external economic environment and a more protracted global electronics downturn, near-term growth prospects for the Singapore economy have turned significantly weaker,' the MAS said.
'At the same time, inflationary pressures are subsiding. However, the slowdown reflects a decline in demand, not an erosion of competitiveness.'
