Singapore Dollar Jumps Most in Two Weeks as MAS Holds Off Easing

Singapore’s dollar strengthened the most in two weeks after the central bank refrained from easing monetary policy again following its surprise move in January.

The Monetary Authority of Singapore, which uses the currency rather than interest rates to guide the economy, said in a statement Tuesday it would keep unchanged the slope, width and band it uses to guide the local dollar. The economy expanded an annualized 1.1 percent in the three months through March from the previous quarter, the trade ministry said separately. The median estimate in a Bloomberg survey was 0.2 percent.

Forecasters were divided on whether the central bank would loosen policy again after it reduced the pace of the local dollar’s appreciation against those of its trade partners on Jan. 28. Eight of 15 economists surveyed by Bloomberg predicted MAS would maintain policy, while the rest expected it to ease.

“Going into this meeting the market was quite split in terms of expectation, which is quite unusual,” said Nizam Idris, head of foreign-exchange and fixed-income strategy at Macquarie Bank Ltd. in Singapore. “They’re pretty comfortable with the current policy set up and are seeing signs of improvement in the global economy.”

Singapore’s dollar jumped 0.6 percent to S$1.3636 against the U.S. currency as of 1:12 p.m. local time, set for the biggest gain since April 1. It has weakened 6.4 percent versus the greenback in the previous six months amid a global dollar rally.

Risk Reversals

The premium traders pay for one-month options to sell the Singapore dollar, compared with those to buy, narrowed to 60 basis points, from 71.25 basis points on Monday, according to data compiled by Bloomberg.

Singapore’s 10-year bond yield fell to 2 percent, from 2.05 percent on Monday.

The MAS guides its currency against an undisclosed basket of counterparts and adjusts the pace of its appreciation or depreciation by changing the slope, width and center of a band. It doesn’t disclose details on the basket, or the band or the pace of appreciation or depreciation.

The central bank reiterated it will retain a “modest and gradual appreciation” of its currency against the basket.

“The policy stance is consistent with the benign inflation outlook and moderate growth prospects for the whole of 2015, and appropriate for ensuring medium-term price stability in the economy,” it said in the statement.

Semiannual Announcements

The central bank has two scheduled policy announcements each year: one in April and one in October. In January it ignored its calendar and said it would reduce the slope of the band. Its previous emergency policy change was after the Sept. 11, 2001, terrorist attacks in the U.S.

Analysts at ABN Amro Group NV and BNP Paribas SA are bracing for another policy announcement before the next meeting. The central bank may ease should crude oil prices decline again and drag inflation below the MAS’s estimates, Roy Teo, a strategist at ABN Amro in Singapore, wrote in a note Tuesday. The MAS may widen its policy band amid market volatility, Philip McNicholas, a senior economist at BNP Paribas in Singapore, wrote in another report.

“The outlook for the global economy has improved slightly, anchored by a stronger recovery in the G3,” the central bank said Tuesday, referring to the U.S., the euro area and Japan.

The MAS reiterated its forecast for the economy to grow 2 percent to 4 percent this year. Singapore is suffering from its longest stretch of disinflation, or slowing inflation, since the global financial crisis in 2009. The central bank lowered in January its inflation forecast for 2015, predicting prices may fall as much as 0.5 percent.

“It seems safe to say that it will not be loosening policy again any time soon,” Daniel Martin, an economist at Capital Economics Asia Pte in Singapore, wrote in a note after the MAS announcement. “By the time of its next scheduled policy meeting in October, inflation will be creeping back up and the global economy should have gained a stronger footing. A prolonged hold looks to be the most likely course.”

(An earlier version of this story corrected the Singapore dollar’s six-month performance versus the U.S. dollar.)

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