The Monetary Authority of Singapore (MAS) is reducing the pace of the Singapore dollar’s appreciation “slightly”, in line with market expectations amid subdued growth and low inflation. There will, however, be no change to the width and the level at which the Singapore dollar's nominal effective exchange rate (S$NEER) policy band is centred, it said in a statement for its semi-annual policy review on Monday (Oct 14 2019). “This measured adjustment to the policy stance is consistent with medium-term price stability, given the current economic outlook,” noted the central bank. “MAS will continue to closely monitor economic developments and is prepared to recalibrate monetary policy should prospects for inflation and growth weaken significantly.” Instead of setting interest rates, the MAS operates a managed float regime for the Singapore dollar, allowing the exchange rate to fluctuate within an unspecified policy band. It changes the slope, width and centre of that band when it wants to adjust the pace of appreciation or depreciation of the Singapore currency. Monday’s move marks the central bank’s first easing move since April 2016 when it flattened the S$NEER slope to zero per cent. The MAS held on to that “neutral” stance for two years before tightening twice in 2018 to allow for “a modest and gradual” appreciation. Amid the headwinds of trade tensions and moderating global growth, it opted to stand pat six months ago. Since then, economists have raised their bets for MAS to loosen its exchange-rate based monetary policy this month, with all 11 economists polled by Reuters expecting a slight easing on Monday. (a) Discuss why MAS uses an exchange rate-centered monetary policy, rather than money supply or interest rates, as the principle tool of monetary policy, as described in paragraph 2 of the article. (b) Besides regulating the foreign exchange market, appraise the other functions MAS performs.
The Monetary Authority of Singapore (MAS) is reducing the pace of the Singapore dollar’s appreciation “slightly”, in line with market expectations amid subdued growth and low inflation. There will, however, be no change to the width and the level at which the Singapore dollar's nominal effective exchange rate (S$NEER) policy band is centred, it said in a statement for its semi-annual policy review on Monday (Oct 14 2019). “This measured adjustment to the policy stance is consistent with medium-term price stability, given the current economic outlook,” noted the central bank.
“MAS will continue to closely monitor economic developments and is prepared to recalibrate
Monday’s move marks the central bank’s first easing move since April 2016 when it flattened the S$NEER slope to zero per cent. The MAS held on to that “neutral” stance for two years before tightening twice in 2018 to allow for “a modest and gradual” appreciation. Amid the headwinds of trade tensions and moderating global growth, it opted to stand pat six months ago. Since then, economists have raised their bets for MAS to loosen its exchange-rate based monetary policy this month, with all 11 economists polled by Reuters expecting a slight easing on Monday.
(a) Discuss why MAS uses an exchange rate-centered monetary policy, rather than money supply or interest rates, as the principle tool of monetary policy, as described in paragraph 2 of the article.
(b) Besides regulating the foreign exchange market, appraise the other functions MAS performs.
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