Singapore Central Bank Eases Policy for First Time in Nearly Five Years

By Ronnie Harui

Singapore's central bank eased its monetary policy for the first time in nearly five years, saying economic growth is likely to slow this year and inflation will stay contained.

The central bank said Friday that it will reduce slightly the slope of the Singapore dollar nominal effective exchange rate policy band. There will be no change to the width or the level at which the policy band is centered, the Monetary Authority of Singapore said.

"This measured adjustment is consistent with a modest and gradual appreciation path of the S$NEER policy band that will ensure medium-term price stability," the MAS said.

The central bank will closely watch global and domestic economic developments, and remain vigilant to risks to inflation and growth, it added. It said core inflation has moderated more swiftly than anticipated and will stay below 2% this year.

Expectations on what the central bank would do were split heading into the decision, with recent data showing a stellar year of growth in Singapore's economy alongside cooling inflation, but geopolitical risks and market volatility on the rise.

Half of the 20 economists and analysts surveyed by The Wall Street Journal had expected the move. The other half had anticipated that the central bank would leave policy unchanged.

MAS last eased policy in March 2020 amid expectations that the economy would contract that year and consumer prices would average between minus 1% and 0% that year. With significant uncertainty over the depth and the duration of the city-state's recession in 2020, the MAS said at the time that core inflation would likely stay below its historical average in the near and medium term.

Unlike most central banks, the MAS uses the exchange rate as a policy tool to damp inflationary expectations and support growth as trade flows dwarf the island nation's domestic activity.

Write to Ronnie Harui at ronnie.harui@wsj.com