The Latest, But Not The Last, Domino To Fall

In a surprise move, MAS has just eased their policy target (excerpt; emphasis added):

MAS Monetary Policy Statement

1. Since the last Monetary Policy Statement in October, developments in the global and domestic inflation environment have led to a significant shift in Singapore’s CPI inflation outlook for 2015. As part of its ongoing economic surveillance, MAS has assessed that it is appropriate to adjust the prevailing monetary policy stance.

2. In October 2014, MAS maintained a modest and gradual appreciation path of the S$NEER (Singapore dollar nominal effective exchange rate) policy band, with no change to its slope, width, and the level at which it was centred. This policy stance, which has been in place since April 2012, was assessed to be appropriate for containing domestic and imported sources of inflation and for anchoring inflation expectations.

3. Over the last three months, the S$NEER has generally fluctuated around the middle of the policy band. The depreciation of the S$ against the broad-based strength of the US dollar was partly offset by the appreciation of the S$ against the Malaysian ringgit, euro, and Japanese yen. Thus, movements in the S$NEER have been relatively muted compared to bilateral S$ movements against the major currencies....

…10. Taking these developments into account, MAS is revising its inflation forecasts for 2015. CPI-All Items inflation is now projected to come in at -0.5–0.5%, from the 0.5–1.5% expected in October. Meanwhile, MAS Core Inflation is expected to be 0.5–1.5% this year, down from the earlier forecast range of 2–3%.2

11. The Singapore economy remains on track to grow at a moderate pace of 2–4% in 2015. However, MAS is reducing its forecasts for CPI-All Items inflation and MAS Core Inflation for 2015. Imported inflationary pressures are receding, with global oil prices likely to stay subdued this year. While domestic cost pressures will remain, the pass-through to consumer prices is expected to be moderate.

12. MAS will therefore continue with the policy of a modest and gradual appreciation of the S$NEER policy band. However, the slope of the policy band will be reduced, with no change to its width and the level at which it is centred. This measured adjustment to the policy stance is consistent with the more benign inflation outlook in 2015 and appropriate for ensuring medium-term price stability in the economy.

As usual, nobody really knows for sure where the level, slope of appreciation or width of the intervention band really are (how’s that for a monetary policy rule), but on the flip side, this announcement came well before the usual MPC meeting in April.

But Singapore is just the latest in a series of gradual monetary policy easing we’ve seen across the globe in the last few months. This month alone, we’ve seen Canada, Turkey, Denmark, Switzerland (with a bang!), and India cutting policy rates. Out of the major global economies, only Brazil has tightened policy. Speculation is that the next ones in the region could be Thailand, Taiwan and potentially Australia. Inflation everywhere is slowing down, but so is growth.

The only certain thing here is that we’re going to see a lot more currency volatility until there’s more clarity…from the Fed, from the commodity markets and in economic growth generally.