Singapore dollar jumps after MAS refrained from more monetary easing

SINGAPORE (BLOOMBERG/REUTERS) - The Singapore dollar turned sharply higher after the Monetary Authority of Singapore refrained from easing monetary policy further and as economic growth last quarter beat analysts' estimates.

By mid-morning, the Sing dollar had risen by nearly 1.1 per cent to 1.3597 per U.S. dollar after the central bank's move spurred investors to cut bearish bets on the currency. Before that, the Sing dollar weakened to 1.3746, compared with its previous close of 1.3714.

The Monetary Authority of Singapore said Tuesday it will "maintain the policy of a modest and gradual appreciation" without adjusting the pace of its currency's moves. Gross domestic product rose 2.1 per cent in the three months through March from the previous quarter, the trade ministry said separately. The median forecast in a Reuters survey was 1.8 per cent.

A faltering growth outlook, coupled with the nation's longest disinflation streak since the global financial crisis, had put pressure on the monetary authority to add to an unexpected January policy easing. While cheaper crude has contributed to falling consumer prices, officials have said Singapore's economy stands to benefit on the whole as a net oil importer.

"It's a reflection that growth is not at risk of falling beneath the government's forecast," said Wai Ho Leong, a Singapore-based economist at Barclays. "It's a recognition that the economy could benefit from lower oil in the second half of the year."

The central bank, which uses the currency rather than interest rates to manage inflation, reduced the pace of the local dollar's appreciation against those of its trade partners in an unscheduled decision on Jan. 28, after growth sagged in 2014 to its weakest in five years. Eight of 15 economists surveyed by Bloomberg predicted the MAS would maintain the overall policy stance today, while the rest forecast it would ease.

Despite MAS' latest policy statement, analysts do not see the currency's strength lasting long, especially as the U.S. Federal Reserve is seen raising interest rates within this year.

"We continue to expect the SGD to weaken against the USD, heading into the anticipated Fed rate hike in September," said Heng Koon How, Credit Suisse Private Bank's senior currency strategist. "We are maintaining our three-month forecast of 1.40, followed by 12-month forecast of 1.43."

Some analysts expect the MAS to ease policy later this year to support the economy and inflation.

Jonathan Cavenagh, senior FX strategist with Westpac in Singapore, saw core inflation pressures as remaining muted and domestic demand as soft. "This creates the risk of an easing at the next meeting in October or another inter-meeting move," said Cavenagh.