Photographer: Munshi Ahmed/Bloomberg

Singapore Set to Forgo Easing to Save Tools for 'Brexit,' China

  • `Really no reason' to change policy now, Nomura's Chan says
  • MAS eased policy twice in 2015, reducing slope of trading band

Singapore’s central bank will probably refrain from easing policy when it meets Thursday, saving its ammunition to fight a faltering global economy and political shocks that may spark turmoil later in the year.

The Monetary Authority of Singapore, which manages the economy through the currency rather than setting interest rates, will maintain its current stance, according to 12 of 18 economists surveyed by Bloomberg. The central bank eased policy in January and October last year, both times reducing the slope of the band it uses to guide the local currency versus an undisclosed trading basket.

The government unveiled an expansionary budget last month, reducing the need for the MAS to loosen policy again even as economic growth probably stalled in the first quarter. The central bank is likely to reserve its firepower for global risks including a possible U.K. exit from the European Union and a further slowdown in China, according to Macquarie Bank Ltd.

“You wouldn’t want to dispense with your already limited policy options,” said Nizam Idris, head of foreign-exchange and fixed-income strategy at Macquarie Bank in Singapore. “There’s a risk that the MAS could move in October.”

January Surprise

In an unscheduled statement in January last year, the MAS said it would seek a slower pace of appreciation for the Singapore dollar against its trading basket. It left policy unchanged at the first of its two regular meetings in April, before "slightly" reducing the slope of appreciation again at its October gathering.

There are doubts about the effectiveness of further easing of monetary policy around the world, Nizam said. The euro strengthened even after the European Central Bank boosted record stimulus last month, while the yen surged to the strongest in 17 months this week even after the Bank of Japan introduced negative rates this year.

The Singapore dollar has strengthened more than 5 percent versus the greenback this year as traders pushed back forecasts for when the Federal Reserve will raise U.S. interest rates due to heightened global risks. Analysts predict Singapore’s currency will weaken to S$1.40 to the U.S. dollar by end-December, from S$1.3466 as of 1:55 p.m. local time on Wednesday. The currency tumbled 6.6 percent last year, its biggest decline since the Asian financial crisis in 1997.

Undisclosed Basket

The Monetary Authority guides the currency against a basket and adjusts the pace of appreciation or depreciation by changing the slope, width and center of a band. It refrains from disclosing details of the basket, the band, and the pace of appreciation or depreciation.

The economy is forecast to expand 1 percent to 3 percent this year, after growing at the slowest pace in six years in 2015, Finance Minister Heng Swee Keat said last month. Gross domestic product was probably unchanged in the first quarter from the previous three months, according to a Bloomberg survey of economists before the government releases the report Thursday.

In February, Singapore’s authorities kept their forecast for the central bank’s core inflation measure, which excludes private transport and accommodation costs, at 0.5 percent to 1.5 percent, even as they lowered their inflation projection for 2016 to a range of minus 1 percent to zero.

‘No Reason’

“There’s really no reason, unless you get some kind of external shock, for them to change policy,” said Craig Chan, head of foreign-exchange strategy for Asia ex-Japan at Nomura Holdings Inc. in Singapore. “I don’t expect much reaction in the Singapore dollar from this.”

Economic and policy shocks from China and the prospect of higher U.S. rates are set to weigh on the Singapore dollar this year, he said.

The International Monetary Fund’s view of the world economy has dimmed over the last six months, exacerbated by China’s slowdown and lower commodity prices. The global economy is beset by an array of risks, from terrorism to concern the U.K. will leave the EU following its June referendum, at a time when growth is at best mediocre, IMF Managing Director Christine Lagarde said last week.

“Singapore’s external environment is worsening, including falling expectations of growth in the U.S. and China,” said Masashi Murata, a currency strategist at Brown Brothers Harriman & Co. in Tokyo, one of the six analysts who predict the central bank will ease this week. “The initial reaction to an MAS easing would be a decline in the Singapore dollar, but it would be limited. Singapore’s monetary policy alone can’t change the U.S. dollar’s weakness.”

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