Singapore policy surprise spurs calls for more monetary meetings

SINGAPORE (Bloomberg) - Singapore's central bank may need to increase the frequency of its policy announcements to avoid wrong-footing investors as it did in January, economists said.

The Monetary Authority of Singapore (MAS) sent the local dollar plunging to the weakest since 2010 on Jan. 28, when it eased months before the semiannual policy gathering that's scheduled for next week. Singapore uses the currency, rather than interest rates, to manage the economy. The looser settings haven't stopped interbank lending rates from rising to a six-year high, prompting speculation the central bank's had to buy the Singapore dollar to keep it within the target band.

Switching to quarterly meetings would let policy makers be more nimble as markets become more volatile, according to banks including Credit Suisse Group and Bank of America. It might also provide more clarity, with economists divided on the central bank's likely move when officials meet on April 14.

"By constraining yourself to semiannual policy statements, it could force essentially a second-best policy response from the central bank," Michael Wan, a Singapore-based economist at Credit Suisse, said by phone Wednesday. "But if you come out to officially say: 'we'll do quarterly statements,' it primes the market for a more frequent shift in policy settings."

Six of 12 economists surveyed by Bloomberg forecast Singapore's central bank will maintain the current policy stance, while the rest expect it to ease again.

Since the unexpected policy move, the local dollar has slumped more than 1 per cent to $1.3587 against the greenback as of 8:30 a.m. in Singapore, after touching a 4 1/2-year low of $1.3941 on March 13.

MAS manages the currency against an undisclosed trade-weighted basket of peers, and guided the exchange-rate band lower in January in an attempt to boost the economy. It cut the inflation forecast for 2015, predicting prices may fall as much as 0.5 per cent.

"The surprise interim move in January suggests that there are a lot of unforeseen factors," said Chua Hak Bin, an economist at Bank of America Merrill Lynch in Singapore. "It justifies a more frequent update of their stance and whether there's been any significant change from previous views."

The Federal Reserve holds eight monetary policy meetings a year, while the Bank of Japan conducts 14 reviews.

MAS said on the day of its unscheduled January decision it was sticking to its main policy cycle of scheduled statements in April and October, and was prepared to conduct reviews in between. Its previous emergency policy change was after the Sept. 11, 2001 terrorist attacks in the U.S.

MAS has been drawing on its foreign reserves to support its monetary stance, analysts said. It might have bought the local dollar to strengthen it after its unexpected easing pushed the currency to the bottom of its policy band, Andy Ji, a Singapore-based strategist at Commonwealth Bank of Australia said last month. Singapore's interbank offered rate rose above 1 per cent on March 24 for the first time since the global financial crisis in 2008 and has since stayed above that level.

"The last few months have shown that currencies can be quite volatile," said Alvin Liew, a Singapore-based economist at United Overseas Bank Ltd. "There might be a case for the MAS to increase the frequency of their policy decisions."