Monetary Authority of Singapore expected to keep policy unchanged at this week’s meeting

This preview via Mizuko, I’ve summarised:

The case for the MAS to stay on
hold is
compelling

• reflecting opposing, and largely offsetting, shifts in the underlying growth and inflation dynamics
• sticky inflation with recent upswing is inconvenient, but a lot of inflation containment work has been done upfront
• stickier non-tradable (than tradable) inflation, diminishes need to (over-) tighten

The rhetoric too is likely to be
materially unchanged

• that is, fairly balanced, without
  relenting on prevailing restriction

—

Note that the MAS’s key monetary policy tool is its exchange rate policy. It adjusts the exchange rate of its dollar (SGD) instead of changing domestic interest rates like most other economies.

It manages the SGD exchange rate against a basket of currencies of Singapore’s major trading partners.

• sets the path of the policy band of the Singapore dollar nominal effective exchange rate (S$NEER)
• this serves to strengthen or weaken the local currency against those of its main trading partners

S$NEER is a combined index made up of bilateral exchange rates between Singapore and its major trading partners

• is a trade-weighted exchange rate

MAS permits the S$NEER to move up and down within the policy band (exact levels are not disclosed). If it goes out of this band, the MAS steps in by buying or selling Singapore dollars.

The policy band has three parameters that the MAS can adjust:

• the slope, the level and the width
• adjusting the slope will influence the pace at which the Singapore dollar strengthens or weakens
• adjusting the level, or mid-point, of the policy band allows for an immediate strengthening or weakening of the S$NEER,
• widening the policy band allows for more volatility of the S$NEER
• these parameters are what are reviewed

The MAS made an unexpected announcement in October 2023 that it was switching to quarterly meetings to assess monetary settings from 2024. It had been meeting only twice a year, in April and October (but could, and did from time to time, meet more often, if conditions demanded an immediate change in settings, such as in 2022 when high inflation triggered two off-cycle moves).

This article was written by Eamonn Sheridan at www.forexlive.com.