Maybank FX InSight - SGD: MAS Can Afford To Be Patient 19 Mar 2015

SGD: MAS Can Afford To Be Patient

§  Recent data releases appear to signal that growth in the first half of the year could be sluggish, and which in turn has increased the risk of a MAS policy move in Apr. However, support from the expansionary budget stance should keep the economy humming. We believe that the growth weakness in 1H 2015 should have already been largely accounted for when MAS reduced the policy slope on 28 Jan. Moreover, the inflation outlook has not changed since the surprised intermeeting. Inflation remains subdued. §  We do not expect any further moves by MAS at its bi-annual policy meeting in Apr policy for now.  Instead, we think that the MAS will take a “wait-and-see” approach driven by data and a medium- to long-term perspective. Any adjustments to the policy band then could come via another intermeeting move with a higher probability that such an unscheduled meeting could take place between Jun and Sep. §  Recent market developments - an imminent Fed fund rate hike and market speculation of a further MAS move at its bi-annual policy meeting in Apr - has dragged the USD/SGD higher. Despite the brief respite from a retracement in the dollar, we are now expecting the USD/SGD to end-2Q at 1.3900 and then moving higher to 1.3950 following the resurgence in dollar strength when Fed rate normalization begins before settling to 1.3700.

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