The Singapore dollar is under renewed pressure as U.S. trade tensions escalate and expectations grow that the Monetary Authority of Singapore (MAS) may ease its exchange-rate policy to support the economy.
- SGD has been weakening alongside a rebounding U.S. dollar and now faces fresh risks from potential U.S. tariffs on pharmaceuticals and semiconductors — two of Singapore’s major export sectors.
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Economists from Barclays. along with other analysts anticipate the MAS could shift to a more accommodative stance at its upcoming policy meeting, with some expecting a flattening of the S$NEER slope to zero.
- Analysts say the threat of higher tariffs starting August 1, combined with low inflation (core CPI is expected to rise just 0.7% in June), could justify pre-emptive easing.
- If U.S. inflation rises due to tariffs, delaying Fed rate cuts, the Singapore dollar may weaken further.
- SGD use in carry trades could also add to the downward pressure.
Info via Bloomberg (gated) in summary.
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The next mass monetary policy statement is expected “not later than’ (that’s what the MAS website specifies as far as a date goes!) July 31.
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Note that the MAS’s key monetary policy tool is its exchange rate policy. It adjusts the exchange rate of its dollar (SGD) instead of changing domestic interest rates like most other economies.
It manages the SGD exchange rate against a basket of currencies of Singapore’s major trading partners.
- sets the path of the policy band of the Singapore dollar nominal effective exchange rate (S$NEER)
- this serves to strengthen or weaken the local currency against those of its main trading partners
S$NEER is a combined index made up of bilateral exchange rates between Singapore and its major trading partners
- is a trade-weighted exchange rate
MAS permits the S$NEER to move up and down within the policy band (exact levels are not disclosed). If it goes out of this band, the MAS steps in by buying or selling Singapore dollars.
The policy band has three parameters that the MAS can adjust:
- the slope, the level and the width
- adjusting the slope will influence the pace at which the Singapore dollar strengthens or weakens
- adjusting the level, or mid-point, of the policy band allows for an immediate strengthening or weakening of the S$NEER,
- widening the policy band allows for more volatility of the S$NEER
- these parameters are what are reviewed
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This article was written by Eamonn Sheridan at investinglive.com.
