Singapore forecasts deflation, contraction in 2020

This photograph taken on February 18, 2020 shows people buying vegetables at a market in Singapore. Singapore’s central bank eased monetary policy on March
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Updated 31 March 2020

Singapore forecasts deflation, contraction in 2020

  • Central bank eases monetary policy as virus heralds deep recession

SINGAPORE: Singapore’s central bank aggressively eased monetary policy on Monday as the bellwether economy braced for deflation and a deep recession this year due to the coronavirus pandemic.

The Southeast Asian nation is among the world’s most open economies and seen as a gauge of the health of the global trade. Last week, it posted a sharp decline in first quarter gross domestic product and slashed growth projections.
The Monetary Authority of Singapore (MAS) manages policy through exchange rate settings, rather than interest rates, letting the local dollar rise or fall against currencies of its main trading partners within an undisclosed band.
The widely-expected easing on Monday was the most aggressive since the 2009 financial crisis, flattening the band’s rate of increase and effectively shifting its center lower. It also comes only days after the government unveiled a large fiscal package to soften the outbreak’s hit to the economy.
While the MAS move follows drastic steps by other central banks, it was still not as bold as some in the market had expected, which pushed the local currency up slightly.
“We have heard the government talk about the downturn in pretty dire terms, so there was no mistaking that pretty aggressive easing would be required,” Barclays’ economist Brian Tan said, adding he had been expecting a bigger move.
The MAS adjusts its policy via three levers: the slope, mid-point and width of its Singapore policy band, known as the Nominal Effective Exchange Rate, or S$NEER.
The central bank on Monday said it would adopt a zero percent annual appreciation rate for its policy band, starting at the S$NEER’s prevailing level, which is currently just below the band’s mid-point.
Analysts said this amounted to a downwards adjustment of the first two settings, the slope and mid-point, but left the width unchanged.
All nine economists in a Reuters survey this month expected the central bank to ease as policymakers worldwide step up efforts to limit the economic damage from the fast spreading virus.
Most global central banks, including the US Federal Reserve, have cut interest rates to cushion the hit to businesses from the outbreak, while many have also resorted to printing money to prevent their economies from slipping into recession.

FASTFACT

The Monetary Authority of Singapore manages policy through exchange rate settings, rather than interest rates, letting the local dollar rise or fall against currencies of its main trading partners within an undisclosed band.

The Southeast Asian shipping, travel and finance hub is bracing for the worst recession in its 55-year history and last week lowered its 2020 GDP forecast range to -4 percent to -1 percent after a sharp contraction in the first quarter.
While Singapore’s early successful efforts to contain the coronavirus won it praise globally, a recent jump in infections to over 800 has raised some concerns about the local spread.
The central bank on Monday also lowered its official outlook for headline and core inflation to -1% to zero percent for 2020.
The MAS said its new policy settings provided “stability” to the exchange rate but added fiscal policy will be the main tool to mitigate the economic impact of the pandemic.
The city-state has spent billions in virus-related relief for businesses and households already this year, equivalent to almost 11 percent of its GDP.
Capital Economics said the move highlighted the limits of central bank policy in weathering the downturn and that further loosening of monetary settings was unlikely in the months ahead.
But others said the central bank still had room to ease when it next meets in October, if not before.
“The overall focus has been to emphasize a message of stability in the Singapore dollar,” said Moh Siong Sim, currency analyst at the Bank of Singapore.
“In the past, wherever there’s such a move, it’s taken as a prelude to a series of easings, but I think this time around the focus is more on the fiscal policy to cushion the blow and the exchange rate is more to release the pressure somewhat.”
Delit audanis itatem sitibus.
Omnis dolorem aut eicil ipsam Omnis dolorem aut eicil ipsam


$8bn blow to Erdogan as investors flee Turkey

Updated 09 July 2020

$8bn blow to Erdogan as investors flee Turkey

  • Overseas holdings in Istanbul stock exchange are at lowest in 16 years

ANKARA: Foreign capital is flooding out of Turkey in a massive vote of no confidence in President Recep Tayyip Erdogan’s economic competence.
Overseas investors have withdrawn nearly $8 billion from Turkish stocks since January, according to Central Bank statistics, reducing foreign investment in the Istanbul stock exchange from $32.3 billion to $24.4 billion.
As recently as 2013, the figure was $82 billion, and foreign investors now own less than 50 percent of stocks for the first time in 16 years.
“Foreign investment has left Turkey for several reasons, both internal and external,” Win Thin, global head of currency strategy at Brown Brothers Harriman, told Arab News.
“Externally, investors fled riskier assets like emerging markets during the height of the coronavirus pandemic. Some of those flows are returning, but investors are being much more discerning and Turkey does not seem so attractive.”
In terms of internal factors, Thin said that Turkish policymakers had made it hard for foreign investors to transact in Turkey. “This includes real money clients, not just speculative.
“By implementing ad hoc measures to try and limit speculative activity, Turkey has made it hard for real money as well. Besides these problems, Turkey’s fundamentals remain poor compared to much of the emerging markets.”
Erdogan allies claim international players are manipulating the Istanbul stock exchange through automated trading, and have demanded action to make it difficult for them to trade in Turkish assets.
Goldman Sachs, JPMorgan, Merrill Lynch, Barclays and Credit Suisse were banned this month from short-selling stocks for up to three months, and this year local lenders were briefly banned by the banking regulator from trading in Turkish lira with Citigroup, BNP Paribas and UBS
JPMorgan was investigated by Turkish authorities last year after the bank published a report that advised its clients to short sell the Turkish lira.
MSCI, the provider of research-based indexes and analytics, warned last month that it may relegate Turkey from emerging market status to frontier-market status because of bans on short selling and stock lending.
With the market becoming less transparent, overseas fund managers, especially with short-term portfolios, are unenthusiastic about the Turkish market and are becoming more concerned about any forthcoming introduction of other liquidity restrictions.
The exodus of foreign capital is likely to undermine Turkey’s drive for economic growth, especially during the coronavirus pandemic when employment and investment levels have gone down, with the Turkish lira facing serious volatility.