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(Bloomberg) -- Singapore’s central bank loosened its monetary policy settings for the first time in nearly five years on expectations price pressures will keep abating and growth momentum will slow.
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The Monetary Authority of Singapore, which uses the exchange rate as its main policy tool rather than interest rates, will “reduce slightly” the slope of its policy band, according to a statement Friday. There was no change to the width of the band or the level at which it is centered.
The MAS revised its forecast lower for core inflation — its closely watched price data — to average 1%-2% this year from a previous estimate of 1.5%-2.5%. The core gauge “has moderated more quickly than expected and will remain below 2% this year, reflecting the return to low and stable underlying price pressures,” it said.
The central bank sees imported costs and local prices including labor staying moderate while it signaled that it isn’t too worried about the inflation impact of a trade war. Economists pointed out that the MAS is no longer explicitly flagging the “two-way” risks on inflation, exuding greater confidence on the path of disinflation.
“While an escalation of trade frictions could be inflationary for some economies, their impact on Singapore’s import prices is likely to be offset” by weaker global demand, the MAS said.
Singapore’s decision comes in a week when President Donald Trump was inaugurated for a second term, vowing to prioritize American interests and promising a “golden age” for the superpower. Trump has threatened sweeping tariffs on both allies and adversaries, casting the imposts as a source of revenue and a way to force companies to bring manufacturing jobs back to the US.
The city-state’s economy is forecast to expand at a slower pace of 1%-3% from last year’s 4% growth.
Following the policy decision, which came in-line with expectations, the Singapore dollar weakened, falling 0.1% against the dollar to 1.3558.
“There is greater comfort that core inflation is headed in the right direction, so the statement is slightly dovish but not overtly so,” said Selena Ling, chief economist at Oversea-Chinese Banking Corp. Ltd. “The window for further easing is there but no sense of urgency so it is not a shoe-in for April at this juncture.”