Macroeconomic and Financial Stability
In October 2019, MAS reduced slightly the rate of appreciation of the S$NEER policy band. There was no change to the width of the policy band and the level at which it was centred.
In its April 2020 Monetary Policy Statement (MPS), which was brought forward to end-March, MAS announced a zero percent per annum rate of appreciation of the policy band for the following six months, and re-centred the policy band downwards to the then prevailing level of the S$NEER. The S$NEER had earlier depreciated to a level slightly below the mid-point of the policy band amid the deterioration in macroeconomic conditions, due to the outbreak of COVID-19. There was no change to the width of the policy band.
In 2019, global economic growth slowed to its weakest pace since 2009. Heightened trade-related tensions weighed on capital expenditure, manufacturing output and trade. Progress in addressing trade issues and policy easing by some major central banks had helped to stabilise the global economic outlook by early 2020. However, the COVID-19 outbreak subsequently triggered the sharpest global economic contraction since the Great Depression of the 1930s. While fiscal, monetary and regulatory policy support mitigated the economic fallout, output and job losses remain inevitable. Substantial uncertainty remains over the outlook, with much depending on how soon the virus can be contained.
Singapore’s GDP expanded by 0.7% in 2019, significantly below the 3.6% annual average growth in the preceding five years. While trade-related activities were sluggish against a lacklustre global backdrop, the modern services and domestic-oriented sectors remained resilient, especially those segments supporting the digital economy. While there were signs of recovery in late 2019, the COVID-19 outbreak has since dealt a severe blow to the domestic economy. In 2020, the economy is expected to fall into recession, alongside extensive travel restrictions and containment measures put in place to manage the outbreak domestically and abroad. There is a high level of uncertainty around the rate of transmission of the pandemic. The risks are tilted to the downside and Singapore’s 2020 GDP growth forecast was recently downgraded to –7 to –4%.
MAS Core Inflation fell to 1.0% in 2019 from 1.7% in the previous year. Price increases moderated across most categories as GDP growth declined and global oil prices fell. For 2020, both MAS Core Inflation and CPI-All Items inflation are expected to turn negative. The pullback in economic activity will lead to an increase in spare capacity both here and abroad. In particular, domestic labour market slack is expected to increase as firms reduce hiring and retrench some workers. Externally-driven inflation including oil prices will remain low, notwithstanding some temporary upward pressures on imported food prices due to supply disruptions. All in, core and headline inflation are expected to average between −1 to 0% in 2020.
In October 2019, MAS reduced slightly the rate of appreciation of the S$NEER policy band as inflationary pressures were expected to remain muted. Amid the spread of COVID-19 domestically and abroad in early Q1 2020, the S$NEER depreciated to a level slightly below the mid-point of the policy band. In its April 2020 policy review, MAS adopted a zero percent per annum rate of appreciation of the policy band starting at the then prevailing level of the S$NEER. This policy stance affirmed the level of the S$NEER as well as the width of the policy band. The zero per cent appreciation of the policy band going forward would impart a degree of stability to the trade-weighted exchange rate. This measured change to the policy stance reflected the primary role of fiscal policy in mitigating the economic impact of COVID-19 and would ensure price stability over the medium term.
MAS commenced disclosure of its foreign exchange (FX) intervention operations in April 2020. This sought to enhance the market’s understanding of the actions taken by MAS to implement its monetary policy stance, while preserving operational effectiveness. The data disclosed comprised MAS’ net purchases of FX from its intervention operations on a six-month aggregated basis, and with a three-month lag from the end of the period.