Wednesday, October 14, 2015

SGD outlook and MAS policy review - Westpac

FXStreet (Delhi) – Sean Callow, Research Analyst at Westpac, notes that the MAS statement was quite dovish in tone, citing a weaker global economy and very subdued inflation pressures which fits the decision to ease policy further but the reluctance to either re-centre the SGD band or adopt zero appreciation suggests an intention to remain hopeful about 2016.

Key Quotes

“This should support SGD intra-Asia but not prevent renewed USD/SGD appreciation towards 1.43 multi-week/month.”

“The MAS projected GDP growth in Q4 15 and 2016 as likely to be “modest”, around 2-2.5% but “with risks tilted towards the downside.” It said the “overall outlook for the global economy has softened compared to the review in April,” citing “weak” US demand for imports, deceleration in China and only “gradual” improvement in the Eurozone and Japan.”

“All this seems to point firmly to further monetary easing. We did see this but of the various options available, the MAS chose arguably the most mild change. The MAS “reduced slightly” the rate of appreciation in the SGD NEER band, without changing the midpoint or its width.”

“Such a small reduction in the SGD rise over a full year in itself surely has virtually no economic effect, so choosing this option rather than either no change at all or moving to a zero appreciation suggests MAS sensitivity to the message it is sending for the next 6 months. It appears to want to indicate that it is neither ignoring weakening global conditions nor becoming gloomy enough to switch to the zero slope that was only adopted in 2001 (9/11) and 2008 (GFC).”

“Meanwhile, Singapore’s advance Q3 GDP eked out a tiny q/q gain (0.1% annualized, 1.4% y/y) and Q2 was revised up from -4% q/q annualized to -2.5%, adding to the initial SGD gains in inevitably choppy trade (forecasters were very divided).”

“On our estimates SGD NEER has rallied from -1.2% vs midpoint to -0.9% but further appreciation should be limited ahead of key China data next week. Looking further ahead in Q4, SGD NEER should be able to track mostly sideways at the same time as USD/SGD joins the rest of USD/Asia in chopping higher, with our year-end target USD/SGD 1.43.”

Check here for recent report on MAS and SGD. “SGD: MAS delivers only the token easing - ANZ
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