(Bloomberg) — Singapore’s central bank is likely to keep monetary policy unchanged Wednesday as it allows fiscal measures to do the heavy lifting in getting the city-state’s economy back on track.

The Monetary Authority of Singapore, which uses the currency as its main policy tool rather than interest rates, probably will refrain from changing any of the three currency band settings, according to all 19 economists surveyed by Bloomberg.

chart: Singapore Monetary Policy History

© Bloomberg
Singapore Monetary Policy History

The MAS — which typically makes policy decisions twice a year, in April and October — took the unprecedented step in its last announcement of lowering the midpoint of the currency band and reducing the slope to zero. That meant it would allow for a weaker exchange rate to head off deflation and support the export-reliant economy.


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Since then, the economy has plunged into recession amid the pandemic and the government has unleashed billions of dollars of stimulus to save businesses and jobs. The city-state is slowly starting to shake off the impact of mobility restrictions and exports have continued to gain, but the recovery is likely to be a slow one as international travel restrictions remain and global demand stays weak.

“We’ve not seen the full extent of the crisis” and as much as 20% of the economy will face “deep scarring from which they may not recover,” MAS Managing Director Ravi Menon said Monday during a virtual forum hosted by the Institute of International Finance.

While the city-state has likely seen the worst of the GDP downswing, Menon said non-performing loans and bankruptcies probably will rise through the start of 2021.

The government has forecast a 5%-7% contraction in the economy this year, the worst since independence more than a half-century ago, and may revise that estimate when the Ministry of Trade & Industry releases advance third-quarter figures on Wednesday. Analysts project gross domestic product rebounded an annualized 33.5% on a quarterly basis in the three months through September, while declining 6.8% from a year earlier, Bloomberg survey data show.

chart: Bouncing Back

© Bloomberg
Bouncing Back

Here’s a look at what’s expected in the central bank’s statement, which is due to be released at 8 a.m. local time on Wednesday:

Policy Band

The MAS guides the local dollar against a basket of currencies and adjusts the pace of appreciation or depreciation by changing the slope, width and center of a currency band. It doesn’t disclose details of the basket, the band or the pace of appreciation or depreciation.

By leaving the policy untouched, the MAS would be signaling that officials are satisfied with the path of the currency — at a time when the U.S. dollar has been on a weakening path.

Video: Analyst: Expect volatile markets into the fall (USA TODAY)

Analyst: Expect volatile markets into the fall



See Table of MAS’s Past Policy Changes

Recovery Path

The MAS has given support to financial markets and borrowers, but allowed fiscal authorities to take the lead in cushioning the economic blow of the pandemic.

The government has pledged about S$100 billion ($73.8 billion) in stimulus so far this year on measures such as wage subsidies, digital transformation initiatives, re-skilling operations and cash grants. It plans to finance a large chunk of that from past reserves.

What Bloomberg’s Economists Say

“Improving the outlook for 4Q are government preparations to reopen further, including arrangements for air travel bubbles.

Reopening will have its limits, though, absent a widely available vaccine. This — along with income losses and higher debt burdens from the virus crisis — will limit the scope of the recovery in 2021.”

Click here to read the full report.

–Tamara Mast Henderson, Asean economist

Read More: Singapore’s Budget to Feel Virus Strain for Years, Heng Says

“Growth and inflation are past their troughs seen in the second quarter,” Maybank Kim Eng Research Ltd. economists Chua Hak Bin and Ju Ye Lee said in an Oct. 5 report. “But the recovery is sluggish and more U-shaped than V, dampened by strict border controls, social distancing rules and foreign worker shortages.”

Inflation Outlook

Consumer prices have contracted for five consecutive months already, dropping 0.4% in August from a year earlier, with the MAS’s core measure falling 0.3%. The central bank’s most recent forecast is for both measures to remain within a range of -1% to 0% for this year.

If MAS officials foresee a potential change in subdued commodity prices, or in labor-market conditions that have been particularly weak, that could mean a revised forecast range.

Only six of the 19 economists in the Bloomberg survey predicted the MAS would revise their 2020 inflation forecast to reflect a higher midpoint, while most expect there will be no change.

(Updates with comments from central bank chief in fifth paragraph.)

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