The Monetary Authority of Singapore (MAS), which targets the value of the Singapore dollar against a basket of currencies as a way to control inflation, added that the country's economy was expected to expand at a "modest" pace for the rest of this year and in 2016 as the uplift from a firmer U.S. economy is tempered by weaker growth prospects in the Asia.
Singapore's economy expanded by 0.1 percent in the third quarter from the second quarter, which showed a contraction of 2.5 percent, as the manufacturing sector continued to decline and growth in the financial sector was weaker due to the slowdown in Asia. But some wholesale trade and transport activities were boosted by an improvement in oil-related activities and public residential construction helped boost some domestic sectors.
MAS forecast growth this year of around 2.0 to 2.5 percent, with risks to the downside, and in 2016 the economy is expected to expand at a similar pace as cyclical headwinds persist.
Core inflation is expected to remain subdued this year but then pick up gradually next year as the impact of lower oil prices and budget measures dissipate, MAS said.
MAS' measure of core inflation, which excludes the cost of transportation and accommodation, is forecast to average 0.5 percent this year and then 0.5 to 1.5 percent in 2016. In the July-August period, core inflation was 0.3 percent, up from 0.2 percent in the second quarter.
Following MAS' previous policy statement in April, the dollar's exchange rate against an unknown basket of currencies (S$NEER or the nominal effective exchange rate of S$) appreciated but since July it has weakened and largely fluctuated in the lower half of the policy band targeted by MAS due to the fears of a more significant downturn in China and other emerging market economies.
Against the U.S. dollar, the Singapore dollar has been rising this month and rose further in response to MAS' policy statement, trading at 1.38 today compared with 1.43 on Oct. 3 to be down 3.6 percent since the beginning of this year.
In today's statement, MAS said it would continue with its policy of letting the Singapore dollar appreciate modestly and gradually, but "the rate of appreciation will be reduced slightly" and there will be no change to the width of the policy band and the level at which it is centered.
While MAS held its policy steady in April, it surprised financial markets in January by reducing the rate of appreciation of the policy band in its first emergency policy changes since September 2001. This led to an immediate depreciation of the Singapore dollar.
The Monetary Authority of Singapore released the following statement: