'Modest appreciation' of SGD against USD expected as MAS tightens monetary policy
'Modest appreciation' of SGD against USD expected as MAS tightens monetary policy
Jan 25, 2022
CURRENCY analysts are expecting a "modest appreciation" of the Singapore dollar (SGD) against the US dollar (USD), following an off-cycle tightening of policy by the Monetary Authority of Singapore (MAS) on Tuesday (Jan 25) - ahead of its scheduled meeting in April.
The move comes after higher-than-expected inflation figures released on Jan 24, with Singapore's headline inflation exceeding economists' expectations to rise 4 per cent in December.
"An off-cycle move is always a surprise," said Bank of Singapore currency strategist Sim Moh Siong. "(But) the slight tightening now will help avoid the situation where MAS needs to do a lot more later on."
Sim said MAS could continue to raise the rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) in April - as was earlier expected. With the off-cycle move today, however, the 2-step increase could allow for a more gradual tightening.
Bank of Singapore is keeping its 2022 year-end USD/SGD forecast unchanged at 1.33. But Sim said the conviction level on this target is now higher.
"We're keeping our view of a modest appreciation of the Singapore dollar against the US dollar," Sim said. "The US Federal Reserve turned hawkish since late last year. At the same time, we're seeing a more hawkish MAS as well (so) it will cancel out each other."
Meanwhile, JPMorgan has revised its 2022 year-end USD/SGD forecast from 1.35 to 1.335.
JP Morgan analysts also expect further tightening in monetary policy from MAS at its April meeting. They have maintained their expectation of a 100 basis point move in the S$NEER basket band crawl slope together with a re-centering of the midpoint in April.
"This is premised on an ongoing escalation and broadening in both supply-side and domestic conditions, with a view that the risk of second-order changes to prices - both from supply-side and domestic conditions - risk remaining elevated beyond the first half of 2022," they said.
The Singapore dollar should outperform in the coming weeks, they added. "From a trading perspective, we argued yesterday that sharp moves in S$NEER higher in the previous month have historically led to Singapore dollar rates outperformance versus US dollar rates in the following month."
Goldman Sachs analysts, too, expect MAS to increase the slope of the S$NEER policy band by 100 basis points at the April meeting, although a re-centering of the midpoint of the S$NEER policy band is not their base case.
Still, they noted further upside risks to core inflation -- such as GST hikes starting this year as well as the extension of Singapore's progressive wage model to cover more sectors.
If there are further upside surprises to core inflation, the analysts see the potential of a one-off re-centering, while lowering somewhat the probability of a 100 basis points slope increase at the April meeting.
HSBC analysts noted that the S$NEER is already at the top bound of the band according to their model, and that MAS' announcement will only gradually open up 0.2 per cent of further upside for the S$NEER between now and April.
However, they believe that MAS is not done with policy tightening yet and expect the Singapore dollar to appreciate further. They also lowered their USD/SGD forecast for end-2022 to 1.32 from 1.33.
Bank of Singapore's Sim noted other near-term risks to inflation, including labour market tightness, supply chain disruptions exacerbated by new Covid-19 variants, and geopolitical risks such as escalating Russia-Ukraine tensions.
"There is some potential for surprise on the inflation front, depending on how these things pan out," Sim said. These, he added, could affect Singapore's monetary policy decisions ahead.
Barclays analysts noted that previous off-cycle decisions to ease foreign exchange policy - in January 2015 and March 2020 - were followed by inaction in the subsequent April meetings.
But they believe "this time is different".
"We believe today's slope increase will prove insufficient in the face of a relatively rapid intensification of inflation pressures as labour shortages begin to bite harder," the analysts said.
"Although it will likely be clear that near-term inflation pressures are high, we believe the MAS will still harbour doubts over whether these pressures will ultimately prove transitory, even if they persist longer than expected."
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'Modest appreciation' of SGD against USD expected as MAS tightens monetary policy
Jan 25, 2022
CURRENCY analysts are expecting a "modest appreciation" of the Singapore dollar (SGD) against the US dollar (USD), following an off-cycle tightening of policy by the Monetary Authority of Singapore (MAS) on Tuesday (Jan 25) - ahead of its scheduled meeting in April.
The move comes after higher-than-expected inflation figures released on Jan 24, with Singapore's headline inflation exceeding economists' expectations to rise 4 per cent in December.
"An off-cycle move is always a surprise," said Bank of Singapore currency strategist Sim Moh Siong. "(But) the slight tightening now will help avoid the situation where MAS needs to do a lot more later on."
Sim said MAS could continue to raise the rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) in April - as was earlier expected. With the off-cycle move today, however, the 2-step increase could allow for a more gradual tightening.
Bank of Singapore is keeping its 2022 year-end USD/SGD forecast unchanged at 1.33. But Sim said the conviction level on this target is now higher.
"We're keeping our view of a modest appreciation of the Singapore dollar against the US dollar," Sim said. "The US Federal Reserve turned hawkish since late last year. At the same time, we're seeing a more hawkish MAS as well (so) it will cancel out each other."
Meanwhile, JPMorgan has revised its 2022 year-end USD/SGD forecast from 1.35 to 1.335.
JP Morgan analysts also expect further tightening in monetary policy from MAS at its April meeting. They have maintained their expectation of a 100 basis point move in the S$NEER basket band crawl slope together with a re-centering of the midpoint in April.
"This is premised on an ongoing escalation and broadening in both supply-side and domestic conditions, with a view that the risk of second-order changes to prices - both from supply-side and domestic conditions - risk remaining elevated beyond the first half of 2022," they said.
The Singapore dollar should outperform in the coming weeks, they added. "From a trading perspective, we argued yesterday that sharp moves in S$NEER higher in the previous month have historically led to Singapore dollar rates outperformance versus US dollar rates in the following month."
Goldman Sachs analysts, too, expect MAS to increase the slope of the S$NEER policy band by 100 basis points at the April meeting, although a re-centering of the midpoint of the S$NEER policy band is not their base case.
Still, they noted further upside risks to core inflation -- such as GST hikes starting this year as well as the extension of Singapore's progressive wage model to cover more sectors.
If there are further upside surprises to core inflation, the analysts see the potential of a one-off re-centering, while lowering somewhat the probability of a 100 basis points slope increase at the April meeting.
HSBC analysts noted that the S$NEER is already at the top bound of the band according to their model, and that MAS' announcement will only gradually open up 0.2 per cent of further upside for the S$NEER between now and April.
However, they believe that MAS is not done with policy tightening yet and expect the Singapore dollar to appreciate further. They also lowered their USD/SGD forecast for end-2022 to 1.32 from 1.33.
Bank of Singapore's Sim noted other near-term risks to inflation, including labour market tightness, supply chain disruptions exacerbated by new Covid-19 variants, and geopolitical risks such as escalating Russia-Ukraine tensions.
"There is some potential for surprise on the inflation front, depending on how these things pan out," Sim said. These, he added, could affect Singapore's monetary policy decisions ahead.
Barclays analysts noted that previous off-cycle decisions to ease foreign exchange policy - in January 2015 and March 2020 - were followed by inaction in the subsequent April meetings.
But they believe "this time is different".
"We believe today's slope increase will prove insufficient in the face of a relatively rapid intensification of inflation pressures as labour shortages begin to bite harder," the analysts said.
"Although it will likely be clear that near-term inflation pressures are high, we believe the MAS will still harbour doubts over whether these pressures will ultimately prove transitory, even if they persist longer than expected."
Is this why we still have faith in the current govt?
They are able to see the world trend n minimise whatever negative impacts on us.
