‘Monetary Policy of Singapore is Overrated’

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NEW DELHI/SINGAPORE: Instead of facilitating and guiding the markets the way world’s leading banks are doing, the Monetary Authority of Singapore (MAS) is not doing the effective work, believes experts. MAS which has official policy-setting meetings just twice a year, sets its monetary policy by adjusting an undisclosed trading band for the currency based on a basket of currencies weighted to reflect trade levels with the city-state. The MAS may intervene if the currency moves outside its band.

Global uncertainties aren’t very important to the economy and monetary policy has been “vastly overrated,” said Ravi Menon, managing director at Singapore’s central bank.

Rather than monetary policy, Menon pointed squarely at other factors as more important.

Weak investments have negatively impacted the world economy, particularly in the U.S., Menon said.

In the U.S.,”the housing market has recovered, the labor market has recovered, the unemployment rate is close to the natural rate. Private consumption is good, chugging along. Consumer sentiment is strong,” he said.

“The only part of the engine that’s not working, and that’s a key part, is private investment. Corporate America, which has these huge cash piles, is not investing.”

That matters more for the global economy and Asia than U.S.gross domestic product (GDP) growth, he said.

“The entire global value chain of manufacturing is plugged into that: Shipping trade, production.”

American companies, despite sitting on cash piles, have not been investing and that matters more for Asia than U.S. gross domestic product (GDP) growth, he said.

In the second quarter of 2016, U.S. companies had cash and marketable securities valued at 32 percent of GDP sitting on their balance sheets, up from 15 percent in the first quarter of 2006, according to a slide showed by Michael Milken at the conference.

Menon had several theories about why investment was so sluggish. For one, he cited less confidence in future growth prospects, which had become a vicious circle as failure to invest was depressing future growth prospects.

Other factors were likely to have a larger impact on the global economy than whether the U.S. Federal Reserve raises interest rates by 25 basis points at its next policy meeting on September 20-21, Menon said at the Milken Institute’s Asia Summit in Singapore on Thursday.


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