Singapore’s central bank said on Wednesday that its currency has room to weaken as an outbreak of coronavirus hits its economy but added that its current policy stance remains appropriate.
The surprise statement by the Monetary Authority of Singapore (MAS) sent the Singapore dollar to its lowest levels since October, making it the day’s worst performing currency in Asia even as Thailand unexpectedly cut rates.
The Singapore dollar was down around 0.8% against the U.S. dollar, its biggest daily fall in about two years
Singapore has warned that the epidemic will hit growth, just as its economy was showing signs of recovering from last year’s weakest growth in a decade.
The city-state has reported 24 cases of new coronavirus, while the death toll from coronavirus in China neared 500 on Wednesday.
Issuing a statement in response to media queries, MAS said its closely-guarded currency gauge, called NEER, had been trading at the top of its policy band, and therefore, has room to depreciate to accommodate any economic hit.
“There is sufficient room within the policy band to accommodate an easing…in line with the weakening of economic conditions as a result of the outbreak of the 2019 novel coronavirus in China and other countries, including Singapore,” MAS said.
The central bank added it was monitoring economic developments closely but that its policy stance remained unchanged and its next policy review would be in April as scheduled.
“The message is clear,” said ANZ’s head of Asia research Khoon Goh.
“MAS is comfortable, and indeed seemingly welcomes, a weaker exchange rate in light of the economic impact” from the coronavirus outbreak.
MAS manages policy through exchange rate settings, rather than through interest rates as other central banks do, letting the Singapore dollar rise or fall against the currencies of its main trading partners within an undisclosed policy band.
The central bank eased policy at the last of its semiannual meetings in October for the first time in three years, and before the latest statement some traders had suspected it could move again.
“There has been some speculation that they (MAS) may ease, but they are telling everyone that they have room not to do anything,” said Philip Wee, senior currency strategist at Singapore’s biggest bank DBS.
“But at the same time, at this point, there is no clarity on what the impact (of the coronavirus) may be.”