October 13, 2011
Singapore Economy Expands, Central Bank Eases Policy
The Monetary Authority of Singapore Friday eased monetary policy for the first time in two years, as the worsening global economic outlook threatens to derail the island nation's export-dependant economy.
The central bank said it will reduce the slope of the Singapore dollar trading band, with no change to the width or level of the band.
The move came as the government reported that the economy grew at annualized pace of 1.3% in the third quarter from the second, better than the 0.7% expansion tipped by economists.
The Singapore dollar rose sharply on the news. The U.S. currency was at S$1.2686, down from around S$1.2781 before the announcement.
The central bank, however, said that it will continue with the policy of modest and gradual appreciation of the Singapore dollar nominal effective exchange rate policy band in the period ahead.
MAS cited that the expected moderation in core inflation as a reason for easing policy.
The loosening signals a shift in policy focus, with less emphasis on containing inflation and more on supporting the economy, which is facing stiffer headwinds from weakening demand in the U.S. and Europe and a slowdown in China.
"Given the stresses and fragility in the advanced economies, the prospects for growth in Singapore's major trading partners have deteriorated," MAS said.
The central bank guides the local currency within an undisclosed, trade-weighted band, using the exchange rate rather than interest rates as its key monetary-policy tool because foreign trade dwarfs domestic demand in Singapore's nearly US$220 billion economy.
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