Singapore’s Central Bank Panics Again, Embraces 2008 Policy as Offshore Yuan Falls

Stock markets have been soaring right? So some have been panic buying even as central banks go on panic mode (as shown by the assimilation of negative rates). 

This Bloomberg’s headline illustrates on the prevailing ambiance: “Singapore Adopts 2008 Crisis Policy as Growth Grinds to Halt”

Singapore’s central bank unexpectedly eased its monetary stance, moving to a policy last adopted during the 2008 global financial crisis, as economic growth in the trade-dependent city-state ground to a halt. The Monetary Authority of Singapore moved to a neutral policy of zero percent appreciation in the local dollar, it said in a statement on Thursday. 

The currency slid the most in five months after the announcement, which came as a surprise to 12 of 18 economists surveyed by Bloomberg, who had seen no change in policy. “The Singapore economy is projected to expand at a more modest pace in 2016 than envisaged in the October policy review,” the central bank said. “Core inflation should also pick up more gradually over the course of 2016 than previously anticipated.” 

As Asia’s financial hub, Singapore is feeling the effects of the global downturn and China’s weakening economy. More businesses were shut than opened in December and February, while bank loans have dropped every month since October, the longest period of declines since 2000. 

Singapore's central bank, the MAS, has been panicking over their credit bubble. The MAS mass warned of a credit bubble in November 2014. Credit risk concerns prompted them to ease in January 2015. Singapore's banks had lately been downgraded by Moodys

Yet a significant downturn in housing prices has already spread to the economy. And this has become a serious headwind. (bold added)

Growth was stagnant in the first quarter, with gross domestic product posting zero expansion on an annualized basis compared with the fourth quarter, the trade ministry said in a separate report Thursday. That was in line with the median forecast of 12 economists surveyed by Bloomberg… 

The last time the MAS shifted its currency policy to zero appreciation was in October 2008, when the economy was in a recession. Thursday’s move was the bank’s second unexpected decision in less than 16 months, following an emergency policy change in January last year to combat the threat of deflation. The International Monetary Fund warned on Tuesday that a prolonged period of slow global growth has left the world economy more exposed to negative shocks. The fund is predicting 1.8 percent expansion for Singapore for this year, compared with the government’s projection of 1 percent to 3 percent. 

The services industry, which makes up about two-thirds of the economy, contracted an annualized 3.8 percent in the first quarter from the previous three months, the first decline since the first quarter of 2015. Manufacturing and construction rebounded strongly in the quarter, expanding 18.2 percent and 10.2 percent respectively. 

Singapore's slowing economy reduces her citizens' capacity to service their high debt exposure, which raises the risks of default. So the MAS responded to such dilemma by easing. 

Yet seen from last year's policy accommodation, bank loans continued to shrivel. This reveals of the nation's balance sheet problems and the impotence of monetarism. You can lead the horse to the water, but you can't make it drink.

 

But no problem. "This time is different"! That's because Singapore's slowing economy has translated to a surge in equity prices. 

Singapore's major bellwether, the STI, was still down by 2.58% as of last Friday. Apparently such deficit was erased from yesterday's 2.69% surge

Nonetheless, the MAS' announcement has prompted the Singapore dollar to fall sharply or the USD SGD to rip.

Curiously, the MAS easing has coincided with the surge in the USD-offshore yuan CNH. Has the MAS responded to the PBoC's action?

Will the prediction of Swiss investor Felix Zuluaf be proven accurate--where Singapore will account for as the epicenter of the region's banking crisis?