Singdollar can ease without any off-cycle action by MAS
Central bank says there's room within band for S$Neer to ease in line with any economic weakness
Singapore
THERE is still breathing room for the Singdollar to ease without an off-cycle move by the Monetary Authority of Singapore (MAS), the central bank indicated on Wednesday.
In a press statement, the MAS held to the monetary policy stance taken at its last meeting in October, which it said "remains unchanged" for now.
But, with economic conditions softening from the widening impact of the 2019 novel coronavirus (2019-nCoV) outbreak, the MAS noted that "there is sufficient room within the policy band to accommodate an easing of the Singapore dollar nominal effective exchange rate", or S$Neer.
With the latest announcement, currency watchers are now hesitant to predict the MAS switching to a sharper "zero-slope" easing policy at the next half-yearly meeting in April.
To fulfil its mandate of medium-term price stability, the MAS lets the Singdollar move within a band, tweaking the slope, width and centre of the band to adjust Singdollar strength.
"The central bank usually does not intervene when the S$Neer is within the policy band," ANZ's Asia research head Khoon Goh wrote in a note.
"But given the impact that the 2019-nCoV outbreak is likely to have on the Singapore economy, it is clear that the MAS would prefer the Singdollar to be weaker to provide some offset ... They have in effect delivered a de facto easing via the market."
As analysts observed in recent months, the Singdollar kept up its strength in end-2019, even after the MAS moved in October to trim the pace at which it can appreciate. In its latest statement, the central bank also affirmed that the Singdollar has been trading in the top half of the band.
That trend held even during last year's trade war between the US and China, DBS currency strategist Philip Wee pointed out.
UOB economist Barnabas Gan added that the S$Neer seemed over-valued at the start of the year, so "it makes sense to reduce this S$Neer strength as an insurance".
His team had expected the Singdollar to slacken to 1.38 against the US dollar by the quarter's end - an outcome now reached on Wednesday.
DBS' Mr Wee, predicting that the exchange rate will weaken to 1.40 by end-March, added that "it is not unreasonable for the S$Neer to reposition at a more neutral level" below the mid-point of the policy band, based on the potential for the 2019-nCoV to hurt domestic demand and services.
The Singdollar lost about 0.7 per cent against the greenback on Wednesday, after the MAS statement prompted a morning sell-off that Vishnu Varathan, head of regional economics and strategy at Mizuho Bank, said "probably reflects market betting that the MAS will ease" in April, no thanks to 2019-nCoV risks.
Indeed, Han Tan, an analyst at broker FXTM, noted that the MAS remarks "have prompted investors to price in the prospects of monetary policy easing" before the April review.
But, in the grand scheme of things, a shift by the Singdollar towards the middle of its policy band "is not inconsistent with perceived risks", Mr Varathan told BT. "And, with scope for further dynamic easing flexibility amid fluid risks, there is no need to jump the gun on policy action."
Citi analysts Kit Wei Zheng and Ang Kai Wei, calling the MAS statement "a tacit endorsement of the market-driven de facto easing", reiterated in a report that the risk of a zero-slope move "has materially increased", especially as the government unveils relief measures for virus-hit tourism-related sectors.
The MAS remarked on Wednesday that, since its October meeting, the S$Neer has been fluctuating near the upper bound of the policy band. "There is therefore sufficient room in the band for the S$Neer to ease in line with any weakness in the Singapore economy in the coming months," it added. - Additional reporting by Fiona Lam
