The Singapore dollar is under pressure as the MAS turns neutral

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The Monetary Authority of Singapore (MAS) surprised the markets in early trade on Thursday, adopting a neutral stance towards the Singapore dollar nominal effective exchange rate (S$NEER) policy band.

Previously the MAS had stated that it would keep the S$NEER “on a modest and gradual appreciation path”, indicating that it was willing to allow the Singaporean dollar to gradually strengthen against a basket of major currencies.

According to Sean Callow, senior currency strategist at Westpac, the surprise decision paints a gloomy outlook for regional trade.

“The MAS is now more downbeat on the outlook for both growth and inflation, prompting a surprise switch from ‘modest and gradual’ SGD NEER appreciation to neutral, a stance last seen in 2010,” said Callow in the wake of the announcement. “GDP growth is seen within 1-3%, ‘slightly below potential’ and core inflation on the lower side of a 0.5-1.5% range.”

Though not an aggressive move, particularly as the S$NEER had been flat over the past six months. Callow suggests the MAS “is delivering a strong message by returning policy to post-GFC settings”.

“As one of the world’s most trade-sensitive economies, Singapore’s concern over a ‘less favourable external environment’ should be noted by the likes of the Reserve Bank of Australia and Reserve Bank of New Zealand,” says Callow.

He also suggests that the initial knee-jerk reaction in the Singapore dollar to the decision — something that has seen the currency weaken by close to 1% against the US dollar — could be the start of a longer-lasting move.

“As for USD/SGD, the inital 1 cent gain to 1.36 should not be the end of the move. On our estimates, SGD NEER is only just below the midpoint of the +/-2% band so there is plenty of scope for SGD to underperform on major crosses and intra-Asia near term.”

Here’s a 5-minute tick chart of the USD/SGD, courtesy of


Earlier in the session Singapore’s advanced Q1 2016 GDP report was released by the government with the economy growing 1.8% from the same quarter a year earlier, beating expectations for an increase of 1.7%.