Ella 
Analysts are anticipating a shift in monetary policy from the Monetary Authority of Singapore (MAS), with expectations of policy loosening possibly starting as soon as the April meeting. Bloomberg has compiled insights from analysts, suggesting a potential adjustment in response to cooling inflation observed in January, with February data eagerly awaited for further insights.
Peter Chia, FX strategist at United Overseas Bank, remarked, “The period of Singapore dollar’s outperformance may be ending as we expect the MAS to commence monetary policy normalization in April. While it may still strengthen against the US dollar, the gains are likely to lag regional peers going forward.” Similarly, Philip Wee, senior currency economist at DBS Bank, expressed a view of anticipating a slight reduction in the slope in July.
It’s noteworthy that the MAS utilizes its exchange rate policy as a key monetary tool, rather than adjusting domestic interest rates like many other central banks. This policy involves managing the exchange rate of the Singapore dollar (SGD) against a basket of currencies representing Singapore’s major trading partners.
The MAS sets the path of the policy band of the Singapore dollar nominal effective exchange rate (S$NEER), which serves to either strengthen or weaken the local currency against its main trading partners. The S$NEER is a trade-weighted exchange rate, calculated as a combined index of bilateral exchange rates between Singapore and its major trading partners.
The policy band consists of three adjustable parameters: the slope, the level, and the width. Adjusting the slope influences the pace of SGD appreciation or depreciation, while altering the level or mid-point allows for immediate strengthening or weakening of the S$NEER. Additionally, widening the policy band permits more volatility in the S$NEER.
The MAS’s unexpected announcement in October 2023 revealed a transition to quarterly meetings for assessing monetary settings starting in 2024. Previously, the MAS convened biannually in April and October, with occasional off-cycle meetings triggered by immediate changes in economic conditions, such as the high inflation observed in 2022.
With expectations of policy adjustments in the near future and the MAS’s commitment to more frequent assessments, market participants will closely monitor upcoming data releases and MAS announcements for further guidance on Singapore’s monetary policy trajectory.
