[Jason_Lim]

• The MAS re-centres the SGD NEER policy band in line with expectation

• Neutral policy stance retained, no depreciation stance shift or policy band widening

• The MAS sees no reason for undue weakening of the Singapore dollar

The Monetary Authority of Singapore (MAS) today eased its monetary policy stance by re-centring the policy band at the prevailing level of the SGD NEER in its latest monetary policy statement (MPS), in line with market expectations. This is effectively a one-off depreciation of the SGD NEER which roughly offset, the estimated +1.5% tightening done in April 2008. In addition, the MAS maintained the neutral policy of 0% appreciation of the Singapore dollar (SGD) Nominal Effective Exchange Rate (NEER) policy band, first implemented in October 2008 after tightening two consecutive times in October 2007 and April 2008. There has been no shift to a depreciation stance nor any change to its policy band width.

Most importantly, the MAS said that there is no reason for undue weakness in the Singapore dollar. The SGD NEER has moved into the strong half of the policy band after the announcement. Analysts expect the SGD NEER to move back to the weak half of the policy band over the next few months as Singapore goes through the deepest part of the current recession in H1 2009, and as the MAS is likely to maintain its neutral FX stance in October 2009.

Although fully in line with market expectations, the Singapore dollar has appreciated this morning. Yesterday, the MAS was rumored to have been intervening fairly heavily, which, in turn, suggests that there were an excessive number of short positions against the currency. Today, they were unwound.

One of the key considerations behind today’s decision was the advance estimate that GDP contracted at an annualized rate of 19.7% in the first quarter following a 16.4% drop in the fourth quarter. As can be seen from the chart overleaf, current performance is much worse that at any time over the last thirty years. Accordingly, the official 2009 GDP growth forecast has been revised downward again to a fall of -6% - -9%. The inflation forecast was left unchanged at -1.0% - 0.0%.

Non-oil domestic exports (NODX), the standard measure of Singapore’s trade performance, rose 10.8% in March on a seasonally-adjusted basis following an increase of 1.6% in February. On a year-on-year basis, the fall declined to 17.0%
from 23.8% in February and a trough of 34.9% in January. NODX have now fallen on a year-on-year basis in eleven out of the last twelve months.