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Singapore monetary authority joins Asia-Pacific central banks in stepping up easing

The Monetary Authorityof Singapore became the latest Asia-Pacific central bank to ease monetarypolicy this year, stepping up efforts to shore up growth.

Following a meeting on April 14, the MAS, which uses the foreignexchange rate as its main policy tool instead of directly adjusting borrowing costs,set the rate of appreciation in the trading band of Singapore's currency at zero.The surprise decision is a departure from the goal of maintaining a "modestand gradual" strengthening of the Singapore dollar against a basket of currencies,which was adopted in April 2010. The monetary authority last policy in October 2015 by slowing thepace of currency appreciation.

"This is not a policy to depreciate the domestic currency,and only removes the modest and gradual appreciation path of [the Singapore dollarnominal effective exchange rate] policy band that was in place," the MAS saidin a statement.

The MAS said Singapore's economy will likely grow at a more modestpace of 1% to 3%, compared to its October 2015 projection, as the city-state facesheadwinds from overseas. Expansion in the U.S. economy may not be as strong as expected,while China's growth momentum will likely wane, the central bank said.

Singapore's economy did not grow in the first quarter from theprevious three-month period.

Inflation in the country has been weak as well. The central banksaid the rate of core inflation, which excludes costs for private road transportand accommodation, will likely rise more slowly in 2016 than its previous estimate.The MAS now projects core inflation will be closer to the bottom of the 0.5%-1.5%range this year and average slightly less than 2% over the medium term.

"Does the economy need help? Yes," Trinh Nguyen, senioreconomist for emerging Asia at Natixis, said in a note after the MAS decision.

The Singapore dollar appreciated about 2.3% since the October2015 policy meeting and is up 0.8% year-to-date, according to Natixis' estimate,based on its assumption of weightings of currencies in the policy basket, whichthe MAS does not disclose.

"The strengthening of the [Singapore dollar] versus mosttrade partners suggests that Singapore competitiveness has deteriorated since itslast meeting and thus the MAS needs to step in and curb that appreciation expectation,"Nguyen said.

Before the MAS made the move, several central banks in Asia-Pacificdeepened easing. The Bank of Japanin late January decidedto adopt negative interest rates, while monetary authorities in Indonesia, New Zealandand India lowered borrowing costs.

There will not likely be more easing in Singapore for the restof the year, Capital Economics economists Daniel Martin and Krystal Tan said ina note. Instead, the MAS may loosen restrictions on the property market, which havepushed housing prices down in recent years, they said.