Monetary Authority of Singapore will slightly reduce the slope of the S$NEER policy band

Monetary Authority of Singapore is Singapore’s central bank. Policy decision statement today, in brief:

• MAS says no change to the width of the policy band or the level at which it is centred.
• MAS says it will reduce slightly the slope of the S$NEER policy band.
• MAS says the measured adjustment is consistent with a modest and gradual appreciation path of the S$NEER policy band that will ensure medium-term price stability.
• Singapore’s MAS says Singapore’s GDP growth is projected to moderate over 2025.
• Singapore’s MAS says the Singapore economy is forecast to expand at a slower pace of 1.0–3.0% this year.
• Singapore’s MAS says MAS core inflation is now forecast to average 1.0–2.0% in 2025, lower than the previous forecast of 1.5–2.5%.
• Singapore’s MAS says CPI-all items inflation is forecast to average 1.5–2.5% in 2025.
• Singapore’s MAS says MAS core inflation has moderated more quickly than expected and will remain below 2% this year.
• Singapore’s MAS says Singapore’s growth momentum is expected to slow over this year.
• Singapore’s MAS says Singapore’s growth momentum is expected to outperform in H2 2024.

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Note that the MAS’s key monetary policy tool is its exchange rate policy. It adjusts the exchange rate of its dollar (SGD) instead of changing domestic interest rates like most other economies.

It manages the SGD exchange rate against a basket of currencies of Singapore’s major trading partners.

• sets the path of the policy band of the Singapore dollar nominal effective exchange rate (S$NEER)
• this serves to strengthen or weaken the local currency against those of its main trading partners

S$NEER is a combined index made up of bilateral exchange rates between Singapore and its major trading partners

• is a trade-weighted exchange rate

MAS permits the S$NEER to move up and down within the policy band (exact levels are not disclosed). If it goes out of this band, the MAS steps in by buying or selling Singapore dollars.

The policy band has three parameters that the MAS can adjust:

• the slope, the level and the width
• adjusting the slope will influence the pace at which the Singapore dollar strengthens or weakens
• adjusting the level, or mid-point, of the policy band allows for an immediate strengthening or weakening of the S$NEER,
• widening the policy band allows for more volatility of the S$NEER
• these parameters are what are reviewed

This article was written by Eamonn Sheridan at www.forexlive.com.