Economists expect MAS to flatten S$NEER slope in upcoming review

ECONOMISTS are expecting the Monetary Authority of Singapore (MAS) to flatten the slope of the Singapore dollar nominal effective exchange rate (S$NEER) policy band in its upcoming monetary policy review.

OCBC, UOB, HSBC and Standard Chartered Bank are expecting the slope of the S$NEER to flatten or head towards neutral, which would mean a zero appreciation path.

Meanwhile, Standard Chartered Bank, DBS Bank, JPMorgan and HSBC are expecting a re-centring of the policy band, which will provide a further boost to the economy, according to various reports released the past week.

For OCBC Bank, a flattened S$NEER slope reflects the preference for a softer S$NEER. OCBC is also expecting the width of the policy band to remain unchanged.

UOB economists Barnabas Gan and Peter Chia reiterated their base call for MAS to ease policy to neutral, from a currently perceived +0.5 per cent appreciation slope. This is while keeping the width of the policy band and its centre unchanged, according to a March 18 note.

Standard Chartered, meanwhile, is expecting MAS to re-centre the S$NEER policy band lower to the prevailing S$NEER level at the time of the policy meeting. Currently, the S$NEER index is estimated to be 1.7 per cent below the middle of the policy band.

DBS foreign exchange strategist Philip Wee expects MAS to ease monetary policy by ending the modest and gradual appreciation path of the S$NEER policy band. This is along with a downward re-centring of the band by up to 2 per cent, Mr Wee said in a March 19 note.

Similarly, HSBC is foreseeing a downward re-centring by as much as 2 per cent - which it views is justified given the sharp hit to growth expected in the first quarter.

Barclays economist Brian Tan previously told The Business Times that he is expecting MAS to both flatten the slope of the S$NEER and re-centre it lower.

MAS will be releasing its six-monthly monetary policy statement (MPS) slightly earlier than usual on March 30, 8am. The early release is not an off-cycle move. The MPS was previously expected to be delivered in April.