SGD: MAS Returns to GFC Policy Stance - Westpac
Sean Callow, Research Analyst at Westpac, notes that the Monetary
Authority of Singapore (MAS) returned to the neutral stance on SGD it adopted
in the wake of the Global Financial Crisis.
“This surprise move indicates a gloomy outlook for regional trade. As well as supporting USD/SGD near term, it should be noted with concern by the likes of the RBA and RBNZ.
Singapore's Q1 16 GDP was flat, right in line with expectations after a strong finish to 2015 and leaving y/y growth steady at 1.8%. However, the MAS is now more downbeat on the outlook for both growth and inflation, prompting a surprise switch from "modest and gradual" SGD NEER appreciation to neutral, a stance last seen in 2010. GDP growth is seen within 1-3%, "slightly below potential" and core inflation on the lower side of a 0.5-1.5% range.
The difference between what was likely a mere 0.5% annual rise in SGD NEER (at most 1%) to zero appreciation is of course not large in mechanical terms and the MAS says that SGD NEER had actually been flat over the past 6 months already despite the upward-sloping band in that time. But the MAS is delivering a strong message by returning policy to post-GFC settings.
As one of the world's most trade-sensitive economies, Singapore's concern over a "less favourable external environment" should be noted by the likes of the RBA and RBNZ. As for USD/SGD, the iniital 1 cent gain to 1.36 should not be the end of the move. On our estimates, SGD NEER is only just below the midpoint of the +/-2% band so there is plenty of scope for SGD to underperform on major crosses and intra-Asia near term.”