Singapore dollar falls on lower inflation forecast

The Monetary Authority of Singapore. -- ST FILE PHOTO: RICHARD CHNG 
The Monetary Authority of Singapore. -- ST FILE PHOTO: RICHARD CHNG 

SINGAPORE (Reuters) - The Singapore dollar slid on Monday after the central bank's lower inflation outlook sparked profit-taking, while most emerging Asian currencies eased on broad strength in the U.S. dollar and risk aversion.

The Monetary Authority of Singapore in its semi-annual policy review statement slightly trimmed its 2014 forecast for headline inflation to 1.5-2.5 per cent from 2-3 per cent previously, while keeping core inflation at 2-3 per cent.

The central bank stuck to a tight monetary policy stance, saying it would maintain its policy of allowing a "modest and gradual" appreciation of the Singapore dollar, with no changes to the slope, width or centre of the policy band.

"US dollar/Singapore dollar will remain close to mid-point and likely to rise as some of the long Singapore dollar positions ahead of the policy announcement are closed," said Saktiandi Supaat, head of FX research at Maybank.

The broad gains in the US dollar put further pressure on the Singapore dollar, he added.

The Singapore dollar had risen more than 2 per cent since March 20, when it hit a near two-month low, as investors built up their holdings before the monetary policy meeting.

Some traders expected further corrections in the Singapore dollar.

"If 1.25 (in the US dollar/Singapore dollar) is supported today, the next level would be 1.2580-1.2600," said a European bank trader in Singapore, adding investors may look to buy the greenback around 1.2510-1.2515.

Still, the longer-term outlook for the Singapore dollar remained brighter than other emerging Asian currencies as the central bank kept policy tight, saying core inflation will remain elevated, analysts said, noting Singapore's external balance was also better than its neighbours.

The Singapore dollar fell to as low as 1.2530, but pared some losses to 1.2506, down 0.2 per cent from previous close.

"We still view today's decision as a medium-term anchor for the SGD as it keeps an estimated 2 per cent annual appreciation trend," HSBC said in a note to clients, referring to the Singapore dollar.

HSBC said it looked for chances to go long on the Singapore dollar against the Thai baht, the Malaysian ringgit and the Philippine peso.