Singapore Set to Ease

Singapore’s central bank is poised to ease monetary policy for the second time in 2015 in an effort to revive dwindling growth, economists predict.

The Monetary Authority of Singapore, which manages the economy through guiding the currency rather than setting interest rates, will boost stimulus when it meets Wednesday, according to 16 of 25 economists surveyed by Bloomberg. The remainder predict no move. The MAS eased policy at an unscheduled meeting in January, saying it would seek to slow the pace of the local dollar’s gains versus its trading partners. At the first of this year’s two scheduled meetings in April, it refrained from further action.

Singapore’s economic performance has worsened since the April gathering. Analysts forecast the nation entered a technical recession in the third quarter, while consumer prices dropped for a 10th month in August, the longest streak of declines since the Asian financial crisis. Analysts predict the currency is on course for its worst year since 1997.

“The MAS has to acknowledge the fact that things have panned out worse than they expected, both in terms of growth, led by external factors, and inflation domestically,” said Nizam Idris, head of currencies and fixed-income strategy at Macquarie Bank Ltd. in Singapore. “The current policy setting does not allow for further depreciation of the Singapore dollar.”

Currency Band

The Monetary Authority guides the local currency against an undisclosed basket and adjusts the pace of appreciation or depreciation by changing the slope, width and center of a band. It refrains from disclosing details of the basket, the band, and the pace of appreciation or depreciation.

Nine economists predict the central bank will lower the center of the band, allowing the Singapore dollar to weaken in the near term. Ten forecast it would reduce the slope, slowing the pace of the currency’s appreciation against the basket over time. Four expect the monetary authority will widen the band, tolerating increased volatility.

“With inflation below the long-term average and growth slowing, this suggests that MAS should be in a position to ease policy,” said Khoon Goh, a senior currency strategist at Australia & New Zealand Banking Group Ltd. “The easing that was done in January was a fairly modest one.”

The central bank will probably recenter its policy band to the prevailing rate, allowing the currency to weaken, he said.

Worst Year

Singapore’s dollar will decline to S$1.44 to the U.S. currency by year-end, according to the median estimate of a separate Bloomberg survey. That would translate into a loss of about 8 percent for the year, the worst annual performance since the currency tumbled 17 percent during the Asian crisis in 1997.

The local dollar was at S$1.4021 at 3:49 p.m. in Singapore on Tuesday after depreciating to S$1.4366 on Oct. 2, the weakest level since September 2009.

Singapore’s export-dependent economy has been hurt by slowing growth in China, while uneven recoveries in the U.S. and Europe have damped demand for Asian goods.

Gross domestic product shrank 4 percent in the second quarter from the previous three months, the trade ministry said Aug. 11. GDP contracted 0.1 percent in the third quarter, according to a Bloomberg survey before the advance figures are released Wednesday. Consumer prices dropped 0.8 percent in August, the statistics department said Sept. 23.

‘Not Disastrous’

It will take more than a technical recession to convince the central bank to ease policy again, according to Oversea-Chinese Banking Corp.

The central bank is more concerned about “an outright recession, rather than a technical recession,” said Selena Ling, an analyst at OCBC in Singapore. The economy will still expand about 2 percent this year, she said.

“We still have about a more-than 50 percent chance of no move, mainly because I think the growth and the inflation story is not disastrous by any account,” she said. “It’s a little bit underwhelming, but it’s not disastrous yet.”

Forex heatmap

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments.
He has a deep understanding of market fundamentals and the impact of global events on capital markets.
He is respected among professional traders for his skilled analysis and career history as global head
of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean
has played an instrumental role in driving awareness of the forex market as an emerging asset class
for retail investors, as well as providing expert counsel to a number of internal teams on how to best
serve clients and industry stakeholders.
Dean Popplewell