Weakness in Singapore Dollar Suggests City-State May Be Next to Ease
If the Singapore dollar’s recent weakness is anything to go by, the city state may be the next in line to execute an emergency easing.
The currency’s nominal effective exchange rate is approaching the bottom of the Monetary Authority of Singapore’s policy band, according to one model. This raises the prospect that the central bank may follow in the footsteps of some of its peers in delivering an out-of-cycle easing.
“An announcement before the next scheduled policy meeting around mid-April should not surprise,” Philip Wee, a foreign-exchange strategist at DBS Group Holdings Ltd., wrote in a note Thursday. “This would be in line with the inter-meeting easing measures” undertaken by other central banks in March, he wrote.
The NEER was 1.6% below the mid-point of the policy band on Friday after dropping to 2% below on Wednesday, based on a model by Standard Chartered Plc. The central bank doesn’t disclose details on the policy band.
On March 13, the central bank said the NEER had eased in an “orderly manner” within the policy band in line with weakening economic conditions. In February, it noted there was room within its exchange-rate band to accommodate some weakness in the currency to counter the coronavirus outbreak, and would make a policy decision in April as scheduled.
Singapore said Thursday it planned to draw on a $60 billion swap facility it entered into with the Federal Reserve.
There’s a growing likelihood that the MAS could undertake an unusual combination of two easing measures, according to DBS and Australia & New Zealand Banking Group Ltd.
“We now expect the MAS to not only shift to a neutral policy stance at their April meeting, but also push the Singapore dollar lower by re-centering the policy band to the prevailing level,” Khoon Goh and Irene Cheung, strategists at ANZ, wrote in a note Wednesday. MAS easing is expected “either at their scheduled meeting in April or earlier,” they wrote.
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