MAS Press Statement on Monetary Policy - October 2001
10 October 2001
1 The GDP growth figures released by the Ministry of Trade and Industry this morning indicate that the Singapore economy has slowed down much faster than expected in recent months, and is now expected to contract by about 3% for the year as a whole. The near-term prospects for the economy are clouded and uncertain, but it is obvious that the downturn will be more protracted and severe than earlier anticipated. The outlook for the external economic environment has weakened significantly, especially after 11 September 2001.
2 The outlook for inflation in Singapore remains subdued, in line with the assessment in the MAS Monetary Policy Statement of 12 July 2001. Domestic inflationary pressures have subsided further with weaker economic activity and the softening labour market. CPI inflation has been trending down since May and is now forecast at below 0.5% in the fourth quarter of this year. For 2001 as a whole it is expected to come in at the lower end of our forecast range of 1.0-1.5%, and for 2002 it should remain low at 0.5-1.5%.
3 Monetary conditions in the economy have eased. Domestic interest rates have generally fallen with the decline in global interest rates. In recent weeks, as economic prospects have declined, the trade-weighted nominal effective exchange rate (S$NEER) has gradually weakened, and is now in the lower half of the policy band. These easier monetary conditions are consistent with the downturn in the economy and the absence of inflationary pressures.
4 Greater uncertainty in the external environment, particularly in light of the recent anti-terrorism strikes, is likely to lead to more volatile market conditions. The MAS has therefore decided to widen the policy band to allow greater flexibility in managing the exchange rate. The widened policy band will continue to be centred on a zero percent appreciation of the S$NEER.