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Quick takes: Singapore's central bank move surprises analysts

Here are some comments by economists after Singapore's central bank unexpectedly eased its monetary policy ahead of a scheduled review in April.

Here are some comments by economists after Singapore's central bank unexpectedly eased its monetary policy ahead of a scheduled review in April.

Earlier on Wednesday, the Monetary Authority of Singapore (MAS) announced that it would maintain the policy of a modest and gradual appreciation of its Singapore dollar nominal effective exchange rate (S$NEER) policy band, but the slope of the band would be reduced.

Mizuho Bank:

"While the timing of the policy change by MAS was not expected (unscheduled moves are exceptional!), the policy action was not a surprise."

"As we have stated on many occasions, we expected that it was only a matter of time before the MAS restores the more usual "modest and gradual" appreciation slope, whereas the slope has been "slightly steeper" since Apr 2012."

"The upshot is that S$NEER appreciation policy remains intact, whereas the policy dilemma from tight wage conditions juxtaposed against subpar growth has subsided, allowing a measured easing from slightly tighter monetary policy settings."

"To be sure, this is not a reaction to deflation risks, but it gives MAS room to wait and watch in April.''


"We believe the SGD NEER will fall to the lower bound of the band before the April MPS (Monetary Policy Statement), as the market will speculate that this is not a one-off easing decision, but the start of an easing cycle. There is a risk that the MAS could ease further in April, by flattening the slope again (to a 0% slope), via a re-centring of the band lower, or by widening the band. We recently revised our USD-SGD forecast to 1.40 by end-2015.''

"We revise our year-end forecast for 6-month SOR from 0.80% to 1.10% and maintain our earlier recommendation to pay SGD2yr IRS with a revised target of 1.5%. The upward pressure on the SOR fixing will intensify on the earlier-than-expected dovish policy stance and as USD Libor rises in the second half of the year.''


"We took partial profits but maintain a significant portion of our long USD/SGD position. With the S$NEER at around -1.4% below the mid policy band, we see limited value in being short S$NEER given the band width has been maintained at +/-2% (our estimate).''

"We maintain our medium-term flattening bias on Singapore rates...the MAS decision will exert upward pressure on the front end of the swap curve. From a yield curve perspective, we expect this to put bear flattening pressure on the curve.''


"The reduced slope of the NEER band is still positive, so the argument for being long SGD at the lower bound remains intact.''

"Investors currently short SGD should prepare to take profits, while others may be better served waiting for the lower bound to be tested instead of adding short SGD exposure at this time.''


"The USD/SGD jumped to a high of 1.3570 immediately after the statement release this morning, from last night's (27 Jan) level of 1.3389, and has since stabilized at the 1.3506 level. Our SGD NEER index fell to 1.2% below the midpoint immediately after the announcement, from 0% to -0.6% range in the past four weeks. The SGD NEER is likely to trade at the weaker half of the policy band (between 1-1.5% below midpoint) and implying a USD/SGD range of 1.3476 to 1.3544.''

"In view of the lowered SGD NEER slope, we believe the USD/SGD could trade towards the 1.40-level over the next six months.''


"We believe the slope is reduced to 1% from 2%. The move is unusual as theMAS makes policy changes at its semi-annual meetings in April and October. However, it is consistent with the policy surprises by global central banks to ease due to the sustained fall in oil prices or altering their FX regimes due to ECB QE.''

"We reestimate our BofAML SGD NEER to better fit this and previous MAS statements and estimate the NEER is now trading 110bps on the weak-side.''

"Nonetheless, we expect the band to be tested in a stronger USD environment and maintain a basket trade of short SGD, KRW and TWD against USD as a proxy of FX wars (target 420bps, initiation Dec 1).''

"This raises the risk that the MAS could shift to a neutral stance in April to maintain band credibility or at least intervene more aggressively to fend off further SGD NEER strength. We also note MAS open market operations injecting net liquidity in recent months, consistent with leaning against appreciation.''

Capital Economics:

"Given the reasonably healthy outlook for the economy and the likelihood that inflation will rebound toward the end of 2015, we do not expect the MAS to loosen policy again when it meets in April.''

"Nor do we expect the MAS or the government to follow up today's decision with loosening of macroprudential policy measures, such as loan-to-value restrictions and stamp duties on home purchases, which have been made more onerous in recent years as the authorities have tried to cool credit growth.''

''They have had to rely on these measures given that the currency regime leaves the MAS no control over local interest rates, which have been near zero since the global financial crisis. Credit growth is still growing faster than nominal GDP and needs to slow further if financial risks are to be contained.''

Credit Suisse:

"This move by the central bank will also have implications on domestic money market rates like Sibor and SOR, out of which the bulk of mortgages are priced.''