The central bank of Singapore unexpectedly eased monetary policy, adopting a policy it last used during the global financial crisis of 2008, as the economic growth in the state ground to a complete halt.
The Monetary Authority of Singapore has moved to zero percent appreciation in the country’s exchange rate, which is a neutral policy.
That caused the local dollar to fall and dragged currencies down across most of the Asia Pacific.
This surprise decision by the central bank came just two days after a warning by the International Monetary Fund of a risk of negative shocks across the global economy.
The bank has delivered a strong message by going back to the post financial crisis settings, said an analyst in the industry in Sydney adding that the surprise move has indicated there is a poor outlook for the trade in the region.
As the financial hub of Asia, Singapore has been feeling the negative effects of a global downturn driven by the weakening economy in China.
Monetary easing comes after an expansionary budget that was announced by Heng Swee Keat the Finance Minister in March, showing how severe authorities consider the slowdown as businesses have shut and growth contracts bank loans.
The economy in Singapore has been projected to grow at a modest pace during 2015 than first viewed by policy reviewers back in October, said the central bank. Core inflation will also increase gradually during the year at a slower pace than originally anticipated.
The gross domestic product in Singapore posted no expansion based on an annualized basis during the first three months of 2016 compared with the three previous months, said the country’s trade ministry.
One Hong Kong analyst said it appeared Singapore was handing the situation with both exchange rate and fiscal policy, and the easing cycle may not be at its end yet.
Singapore’s dollar dropped 1% to 1.363 per one U.S. dollar on Thursday evening local time.
The change in policy might have an effect that is wider causing central banks in the region to reassess their won stance, said an economist in Hong Kong.