Singapore Surprise Spurs Calls for More Monetary Meetings

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Singapore’s central bank may need to increase the frequency of its policy announcements to avoid wrong-footing investors as it did in January, economists said.

The Monetary Authority of Singapore sent the local dollar plunging to the weakest since 2010 on Jan. 28 when it unexpectedly eased policy months before the twice-a-year meeting scheduled for next week. Singapore uses the currency, rather than interest rates, to manage the economy. The looser settings haven’t stopped interbank lending rates from rising to a six-year high, prompting speculation the central bank has been buying Singapore dollars to keep it within the target band.

Switching to quarterly meetings would also let policy makers be more nimble as market volatility increases, according to banks including Credit Suisse Group AG and Bank of America Corp. It may also provide more clarity, with economists divided on the central bank’s likely decision when officials meet on April 14.

“By constraining yourself to semiannual policy statements, it could force essentially a second-best policy response from the central bank,” Michael Wan, an economist at Credit Suisse in Singapore, said by phone Wednesday. “But if you come out to officially say: ‘we’ll do quarterly statements,’ it primes the market for a more frequent shift in policy settings.”

Economists Split

Six of 12 economists surveyed by Bloomberg forecast Singapore’s central bank will next week maintain the current policy stance, while the remainder expect it to ease again.

The local dollar has weakened more than 1 percent since the day before the unexpected policy announcement to S$1.3593 per greenback as of 12:43 p.m. in Singapore. The currency slumped to a more than four-year low of S$1.3941 on March 13.

The MAS manages the currency against an undisclosed trade-weighted basket of peers. Policy makers guided the exchange-rate band lower in January in an attempt to boost the economy, and cut their inflation forecast for 2015, predicting prices may fall as much as 0.5 percent.

“The surprise interim move in January suggests that there are a lot of unforeseen factors,” Chua Hak Bin, an economist at Bank of America Merrill Lynch in Singapore said April 8. “It justifies a more frequent update of their stance and whether there’s been any significant change from previous views.”

The Federal Reserve holds eight monetary policy meetings a year, while the Bank of Japan conducts 14 reviews.

Scheduled Cycle

The MAS said on the day of its January decision it was sticking to its main policy cycle of scheduled statements in April and October, and was prepared to conduct reviews in between. Its previous emergency policy change was after the Sept. 11, 2001, terrorist attacks in the U.S.

Singapore’s central bank has been running down its foreign reserves to support its monetary stance, analysts said. It might have bought the local dollar to limit declines after its unexpected easing pushed the currency to the bottom of its policy band, Andy Ji, a Singapore-based strategist at Commonwealth Bank of Australia said last month.

Singapore’s three-month interbank offered rate rose above 1 percent on March 24 for the first time since the global financial crisis in 2008. It fell to 1.02516 percent from 1.02705 on Thursday, its first daily decline since February.

JPMorgan Chase & Co.’s Global FX Volatility Index surged to a 19-month high on Jan. 16, a day after the Swiss central bank scrapped the franc’s cap against the euro.

“The last few months have shown that currencies can be quite volatile,” Alvin Liew, a Singapore-based economist at United Overseas Bank Ltd. said on Thursday “There might be a case for the MAS to increase the frequency of their policy decisions.”

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