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MAS to release data on its forex intervention, transfers S$45b in reserves to GIC

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The Monetary Authority of Singapore (MAS) has decided to release further information on its monetary operations without compromising its effectiveness, it said on Wednesday, as it also announced the transfer of S$45 billion from the official foreign reserves (OFR) to GIC for longer term investment.

THE Monetary Authority of Singapore (MAS) has decided to release further information on its monetary operations without compromising its effectiveness, it said on Wednesday, as it also announced the transfer of S$45 billion from the official foreign reserves (OFR) to GIC for longer-term investment.

The Singapore central bank said it will disclose data on its foreign exchange (forex) intervention operations, which comprise MAS’s net purchases of forex on a six-month aggregated basis, with a six-month lag from the end of the period.

Thus, the data would be released on a six-monthly basis and will begin with data for the second half of 2019. This works out to the first release date coming in July 2020.

Forex intervention is integral to MAS’s management of the Singapore dollar nominal effective exchange rate (S$NEER). MAS said its forex intervention operations will remain focused on keeping the S$NEER within its policy band to “keep inflation low over the medium term”.

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"This further disclosure initiative will provide market participants a better indication of the actions that MAS has undertaken to implement its monetary policy stance, while preserving MAS’s operational effectiveness," it said.

The disclosure of its S$45 billion transfer of funds from the OFR to Singapore’s sovereign wealth fund GIC is one of MAS’s firsts, and looks to be a move towards more transparency.

Currently, MAS discloses the amount its OFR stands at on a monthly basis, thus such a move would allow the financial community to understand any movements should figures change monthly.

As at April 2019, the OFR stood at S$404 billion. As Singapore's central bank, MAS manages the country’s OFR. (see amendment note)

MAS said this amount is the “excess” over what it deems necessary to maintain confidence in Singapore’s exchange rate-centred monetary policy and does not imply any reduction in Singapore’s total foreign reserves.

The fund transfer is slated to take place in May 2019, and will be invested on a longer-term basis with expected higher returns.

MAS said the fund transfer was prompted by its latest review which found it should be maintaining the OFR to at least 65 per cent of its gross domestic product (GDP) on an ongoing basis.

The stock of OFR has "grown steadily over the years", amounting to 82 per cent of GDP as at the first quarter of 2019, it said.

"This level of OFR will provide a sufficiently strong buffer against stresses in the global economy and markets, and underpin confidence in Singapore’s exchange rate-centred monetary policy," MAS added.

MAS engages in market intervention operations to keep the S$NEER within a policy band consistent with ensuring price stability, as the exchange rate plays a dominant role in determining core inflation in Singapore.

The OFR thus enables MAS to defend the stability of the S$NEER during "times of speculative pressures of financial crises", it said.

When asked about how the move may impact the Singapore dollar, Selena Ling, head of treasury research and strategy at OCBC Bank, said that in the near term, the Singapore dollar will be more reactive to newsflow on escalations in US-China trade tensions and ongoing US dollar strength and yuan volatility.

Greater transparency on the net forex intervention operation data will also be welcome for market watchers and non-agent banks, albeit with a six-month lag, she added.

“While the six-month aggregated net purchases of forex may provide some clues, albeit mainly in hindsight, this move does not signal any monetary policy direction shift in our view,” Ms Ling said.

Amendment note: A previous version of this article stated that Singapore's total foreign reserves to be S$404 billion when the amount refers to the country's OFR as at April 2019.