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Quick takes: MAS carefully nipped Singdollar strength in the bud, analysts say

FACED with a certain recession in 2020, the Monetary Authority of Singapore (MAS) eased the Republic’s exchange rate-based monetary policy in two steps on Monday.

The MAS not only flattened the pace of the Singapore dollar’s appreciation, but also lowered the mid-point of the Singdollar (SGD) nominal effective exchange rate (NEER) band that the currency can move in - the first such re-centring since April 2009.

Here are some quick takes from analysts on the central bank’s latest move:

Mohamed Faiz Nagutha, BofA Global Research:

MAS's policy approach was clearly a calibrated move, with the central bank characterising the monetary policy stance as "stable". In other words, policy parameters have been merely marked to market, rather than providing a dovish surprise.

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Brian Tan and Ashish Agrawal, Barclays Bank:

The SGD NEER was trading on the strong side of the band even despite last year’s trade war headwinds and the previous reduction in the slope of the SGD NEER policy band. The recent bunched-up 2.8 per cent weakening in the SGD NEER came after the MAS acknowledged, in response to media queries, that there was sufficient room in the band for the SGD NEER to ease in line with weakness in the economy.

Pan Jingyi, IG Asia:

The semi-annual meeting, brought forward from its usual April occurrence, saw to the MAS setting the Singapore dollar’s rate of appreciation to zero. The immediate reaction had seen to the Singapore dollar strengthening as the MAS stopped short of re-centring the mid-point for the SGD NEER policy band past the prevailing level against some expectations of which. That said, as the MAS reinforced on the weak growth outlook, the medium-term view with USD/SGD remains one of further upsides as Singapore wrestles the Covid-19 implications.

Joey Chew, senior Asia currency strategist, HSBC:

The knee-jerk appreciation this morning was probably because the MAS was not as aggressive with its policy easing as it could have been. It could have gone against the norm by re-centring below the prevailing level, or it could have adopted the previous lower bound as the new mid-point (so an explicit 2 per cent downward re-centring), but it did neither of those things. The MAS was downbeat about the growth and inflation outlook but made it clear that fiscal policy would play the "primary role" in offsetting these downward economic pressures. The MAS seems to be satisfied with an exchange rate that is "stable" around recent levels - in other words, stable around the new mid-point.

Kit Wei Zheng, Ang Kai Wei and Gaurav Garg, Citi:

Policymakers likely prefer some measure of stability around the new mid-point in the near term. This likely reflects their assessment that the orderly depreciation of the NEER between January and March correctly reflected the assessment that Covid-19 would have a discernible impact on prospects for 2020, which, together with the absence of inflation pressures, would thus allow MAS to start the zero appreciation path at the prevailing level of the NEER.

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