MAS Monetary Policy Statement

The latest quarterly statement from MAS was released on 10 April 2007 on their website. Analysts and financial journalists studied the statement to understand the macroeconomic environment facing Singapore. They also tried to study signs of the monetary policy stance taken by MAS to manage the Singapore dollar exchange rate (S$ Nominal Effective Rate S$NEER).

The S$NEER has fluctuated near the upper end of the policy band during the past six months. This reflected a number of factors, including the broad-based weakness of the US$, a resurgence of capital inflows into the region, as well as a relatively buoyant Singapore economy.  Against expectations over the appreciation of the S$ and the liquidity conditions in the market, the three-month domestic interbank rate has come down to 2.9% as at end-March 2007, from 3.4% in September 2006. MAS will maintain the policy of a modest and gradual appreciation of the S$NEER policy band in the period ahead.  There will be no re-centring of the policy band, or any change to its slope or width. (Source: MAS)

This means that MAS will allow a gradual appreciation of S$ against a trade-weighted basket of foreign currencies. The details of this trade-weighted basket of foreign currencies are never revealed.

Besides the monetary policy stance information, MAS also provides the outlook for the Singapore economy as at the point of the report in the following 3 paragraphs:

The Advance Estimates released by the Ministry of Trade and Industry suggest that GDP growth continued at a steady pace in Q1 2007, supported by ongoing expansions in the transport-hub, finance, and construction sectors.

Looking ahead, the external environment is expected to remain broadly supportive of sustained growth.  Financial conditions are mostly favourable with inflation well-contained.  Growth in Asia is expected to be anchored by the major economies of China, India and Japan.  However, a number of risk factors have recently emerged.  US economic growth has lost some momentum, led by the correction in its housing sector, and the problems in the subprime mortgage market may yet lead to some retraction in consumer spending.  Further, the global IT industry remains weak on a build-up of inventories and strong competitive price pressures. 

Reflecting some of these weaknesses, Singapore’s export growth has moderated, and the manufacturing sector is expected to expand at a slower rate this year than in 2006.  Conditions in the IT industry are likely to remain sluggish till later in the year, although the non-electronics clusters are expected to maintain healthy growth.  Economic activity will be buttressed by the continued growth in the services industries, including financial and business services as well as the tourism-related cluster.  Overall, GDP growth is projected to come in at 4.5-6.5% in 2007, down from the nearly 8% recorded in 2006. (Source: MAS)

The above is a broad description of the economic outlook for Singapore vis-a-vis the region and the world. It indicates moderate GDP growth potential barring any unforeseen external shock which was not predicted at this juncture. Some specific industry sectors were covered in the statement and this can allude to investment opportunities.

When the next quarterly MAS Monetary Policy Statement is released, take a look at it. The journalists will also cover it in the mainstream newspapers with their own interpretation of the report.

Written on 4/27/2007 3:30 PM

Copyright © 2007, the author known as LKT in Singapore.

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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