MAS's lesson in the unexpected

IF surprise is a key weapon in a central bank's armoury, the Monetary Authority of Singapore (MAS) wielded it emphatically on Wednesday, with an unexpected easing stroke. Catching the market off-guard, MAS decreased the slope of its Singapore dollar nominal effective exchange rate (S$NEER), while maintaining its policy of a modest and gradual appreciation of the S$NEER policy band. The move, in effect, will slow the appreciation of the Singapore dollar.

Market watchers described the action as a "surprise", "unscheduled" and "unusual", and it was. The MAS usually adjusts its policy position during its policy reviews in April and October each year. The last, and only time it made an adjustment outside the policy cycle was in the volatile days after the Sept 11 terror attacks in 2001.

But, while the timing indeed was a surprise, the direction of the MAS move was something that had looked increasingly likely.