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MAS: Room for easing of local currency within policy band

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Currency has stayed in upper part of band since Oct

Singapore's central bank said yesterday the country's current exchange-rate band has enough room to accommodate an easing of the local currency, even as its monetary policy stance remains unchanged.

The Monetary Authority of Singapore (MAS) was responding to media queries about its monetary policy stance, given that traders are betting that central banks will loosen the policy to support the economy due to the coronavirus outbreak.

The Bank of Thailand cut its benchmark interest rate to a record low yesterday and put even greater pressure on the struggling Thai economy.

The Singapore dollar slid to a four-month low after the MAS statement, trading down 0.7 per cent to $1.3812 to the US dollar as of 1.30pm from Tuesday's close. It earlier fell as much as 1 per cent to $1.3853.

MAS said the Singdollar has been fluctuating near the upper bound of the policy band since its last review in October, when it reduced slightly the Singdollar appreciation rate, the first easing since April 2016.

"There is therefore sufficient room in the band... to ease in line with any weakness in the Singapore economy in the coming months," the MAS said.

The Singdollar is weighed against a basket of currencies, and is allowed to fluctuate within an unspecified band.

The MAS regulates the Singdollar by buying or selling it when it goes out of the band.

The MAS added it is "monitoring economic developments closely" and that the next half-yearly monetary policy review "remains as scheduled" in April.

DBS Bank foreign exchange strategist Philip Wee said: "The MAS statement tells us there will be no urgency for an inter-meeting easing in the Singdollar policy before the next scheduled policy review."

He noted the appreciation of the Singdollar "has held in the stronger half of the policy band throughout the United States-China trade war".

"Singapore averted a technical recession because the impact from the trade war was not broad-based and confined mostly to trade and manufacturing," he added.

"Given the potential negative spillover from the coronavirus into domestic demand and services... it is not unreasonable for the (Singapore) currency to re-position at a more neutral level, currently just below the mid-point of the policy band," said Mr Wee.

He predicts a further deterioration in the virus outbreak would keep the Singdollar in the lower half of the band - between $1.376 and $1.403 against the US dollar.