SINGAPORE: Singapore’s central bank is being put to the test as it navigates a sluggish economy and falling consumer prices with a policy tool focused on the currency.
Unlike most advanced nations, and because of its heavy dependence on exports, Singapore targets the exchange rate instead of interest rates to maintain price stability. Analysts are looking to the Monetary Authority of Singapore on Friday to provide any clues on whether it prefers a weaker local dollar to bolster an economy that probably didn’t grow at all in the third quarter.
The Singapore dollar is managed against an undisclosed basket of currencies of its major trading partners and competitors. The central bank intervenes in the market to keep the rate within an unspecified range and changes the slope, width and center of that band when it wants to adjust the pace of appreciation or depreciation of the local dollar.
At its last policy decision in April, the central bank eased its stance by saying it won’t seek an appreciation in the exchange rate effectively adopting a flat slope that the MAS last used during the 2008 global financial crisis.
Twenty-one out of 24 economists surveyed by Bloomberg expect the MAS to maintain its current stance as the city-state probably avoids an economic recession and keeps its firepower for next year.
“The data is not so strong, and global growth remains weak, but it’s kind of stable,” Masashi Murata, vice president of investor services at Brown Brothers Harriman, said by phone from Tokyo. “I don’t think MAS needs to make a move now.”
