Maybank FX Flash - SGD: Pressured Lower By Shift To Neutral Policy - 14 Apr 2016

SGD: Pressured Lower By Shift To Neutral Policy

      The MAS surprised market this morning by shifting to a neutral policy stance. This marked the third easing move by the monetary authority in one-and-half years. There was no change in the width of the policy band or the level at which it was centred. USDSGD spiked back above the 1.36-handle following the announcement and the SGD NEER has slipped below the mid-point to around -0.6% at the point of writing.

      MAS statement reiterated that this was not a policy to depreciate the SGD but to only remove the modest and gradual appreciation stance that has been in place. Possible reasons for this move by the MAS include the dimming global outlook since Oct and that core inflation could come in at the lower half of the forecast range.

      The MAS’ latest move is unlikely to have significant impact on the SGD but it will add to SGD volatility and push domestic interest rates higher because it may signal the perception that MAS may continue to ease given the marginal easing move this time round. Nonetheless, given the easing bias and the signalling, we expect the market to revise some of its view based on the perception of possible further easing.  We are revising the SGD forecasts slightly higher to Q2: 1.3550, Q3: 1.3750, Q4: 1.3850. SGDMYR expected to remain heavy amid SGD weakness following the MAS policy move.