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Can Investors Here Look Forward To Growth With The Monetary Authority of Singapore Easing Monetary Policy?

The Monetary Authority of Singapore (MAS) announced on Wednesday that it has decided to ease its monetary policy again this year. This is the second time it has happened in 2015.

Unlike most central banks which tweak interest rates in an attempt to boost or cooldown their respective economies, the MAS’s preferred tool involves currency instead. The easing of the monetary policy will see the Singapore dollar’s pace of appreciation against a basket of global currencies slow – in other words, while the dollar will continue to climb, it will be doing so at a gentler pace.

Now that the MAS has decided to act to boost the local economy after Singapore narrowly missed a technical recession in the third-quarter of the year, can investors look forward to stronger growth ahead? With the stock market seemingly reflecting a weaker outlook given the 14% decline in the Straits Times Index (SGX: ^STI) since April 2015, any green shoots of growth will likely be welcome.

Not so easy

Unfortunately, things are not as easy – the MAS can’t just wave a wand and conjure up growth. That’s because the health of Singapore’s economy depends on factors beyond the nation’s own trading activity – as a trading hub, it also relies heavily on the level of trade between other nations.

Economic growth in China is slowing down appreciably. With China being one of the world’s largest exporters and importers, if it catches a cold, Singapore might sneeze too. Beyond China, wild currency swings are troubling countries like Malaysia and Indonesia (both are, as you may know, Singapore’s immediate neighbours). Meanwhile, there’s also political instability in Thailand and Malaysia, which definitely do not help with the situation.

Bear in mind that all the issues mentioned in the paragraph just above are not within MAS’s or Singapore’s control. If the regional or global economy is sluggish, there is only so much Singapore’s government and policy makers can do to try and stimulate the economy.

Foolish Summary

It is good to know that the MAS is taking action to manage the country’s economy positively. But, we have to know that there is a limit to how much Singapore’s central bank can do. As a small nation that depends on global trade, there are plenty of moving parts affecting Singapore’s economy which the MAS has little or no influence over.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.