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Singapore sets currency appreciation to 0% to encourage growth

The Monetary Authority of Singapore (MAS) has set a target of 0% appreciation for the Singapore dollar. 18 Apr 2016

MAS manages Singapore's inflation through the country's exchange rate rather than interest rates, and has made the move to encourage growth in the economy, it said.

The policy is not designed to depreciate the currency, MAS said, but to prevent a slow appreciation. It follows "measured steps" that MAS has taken to slow the appreciation of the Singapore dollar's value and ensure price stability, it said.

The last time MAS shifted to 0% appreciation was in October 2008, during the global financial crisis, the Straits Times reported.

"Compared to expectations in October 2015, the Singapore economy is now projected to expand at a more modest pace this year, against the backdrop of a less favourable external environment. MAS Core Inflation is likely to pick up gradually over 2016 as the disinflationary effects of budgetary and other one-off measures fade. However, the increase in core inflation will be milder than earlier expected," MAS said. 

The outlook for the global economy "has dimmed since October", MAS said. "The pace of expansion in the US economy is expected to be more modest than earlier anticipated on account of weakening investment and exports, even as the strengthening labour market continues to underpin private consumption. In the Eurozone and Japan, economic activity will be dampened by their appreciating currencies and weak external demand, notwithstanding recent efforts to boost growth through more accommodative monetary policy," it said.

China’s growth momentum "is likely to moderate, as its services sector expansion is unlikely to be sufficiently strong to offset faltering industrial activity, amid supply gluts and weak global demand," MAS said.

Overall, Singapore's economy is likely to grow at a "modest pace" of 1-3% in 2016, as the country's major trading partners "continue to pose cyclical headwinds to the external oriented sectors", MAS said.