MAS tightens policy modestly

The Singaporean central bank surprised the markets today during its policy meeting The Monetary Authority of Singapore tightened its policy modestly. This was done by way of a slight rise in the slope of the SGD NEER but there were no changes to the center of the SGD NEER or the band width. Given the small and open nature of the economy, the central bank manages monetary policy on a trade-weighted exchange rate basis rather than adjusting a policy rate. Meanwhile, an appreciation in the SGD NEER equates to a policy tightening and vice versa.

According to a Commerzbank research report, the central bank’s move hints at a few important points, including it is confident on the growth outlook. The government is       expecting just 1.5 percent to 3.5 percent growth in 2018. It projects upside risks to inflation because of higher wages stemming from ongoing tightness in the labor market, and it will keep pace with the U.S. Fed rate hikes and not run the risk of falling behind the curve, stated Commerzbank.

Even if the Fed has raised the rates by 150 basis points so far with more hikes to follow, the Singaporean central bank has not tightened so far in this cycle. This is believed to be a pre-emptive move.

“The pace of appreciation is not revealed but we estimate it will be probably at a modest 0.5-1% pa rather than at an aggressive pace. For USD-SGD, it has been rather stable between the 1.30-1.32 for the past two months or so and despite MAS’ move today, we could see this situation persisting for the time being”, added Commerzbank.

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