The Singapore dollar is likely to slide to levels seen in the aftermath of the global financial crisis as the Monetary Authority of Singapore (MAS) resumes easing policy in April. So says an analyst who has correctly predicted the last three central bank decisions.
The authority, which uses the currency as a tool to manage the economy rather than interest rates, is set to lower the centre of the band within which it steers the local dollar as Singapore's export-driven economy feels more pain from China's slowdown next year, according to Mr Vaninder Singh, an economist at NatWest Markets, part of the Royal Bank of Scotland Group.
The currency is set to weaken past $1.45 against the greenback within the next six months, Mr Singh said, a level last seen in August 2009.
A property downturn in China, Singapore's biggest trading partner, will hurt the South-east Asian nation's prospects, said Mr Singh. That's at a time when growth is already under pressure amid a slowdown in global trade.
The Singapore dollar fetched $1.4424 versus its US counterpart yesterday. It had sunk to $1.4481 on Thursday after the US Federal Reserve raised interest rates and forecast a steeper path for borrowing costs next year.
The MAS guides the Singapore dollar against a basket of currencies and adjusts the pace of appreciation or depreciation by changing the slope, width and centre of a band. It refrains from disclosing more details.
While the Government last month cut the top end of its 2016 growth forecast to 1.5 per cent from 2 per cent, it said the economy will probably avoid a recession.
The MAS said in October that inflation had "troughed", and stuck to the neutral stance of zero appreciation for the currency.
"There is this very interesting interplay between frustrating slower growth and stabilising inflation," said Mr Heng Koon How, of Credit Suisse Group's private banking and wealth management unit. "It's not that straightforward that the MAS may ease outright."
The local dollar will probably slump to $1.48 at the end of next year on the prospect of higher US interest rates and a weaker Chinese yuan, Mr Heng said.
The Australia and New Zealand Banking Group also expects Singapore's central bank to adjust the centre of its policy band next year, said Mr Khoon Goh, its head of Asia research in Singapore. Investors who are betting on a decline in the currency can take profit at $1.50, he said.
Mr Jason Wang, who has been advising his clients to buy the greenback in the past four years, is also bearish. The Singapore dollar will likely slide towards $1.50 in the next six months, said the chief executive officer of Stamford Management. "Given that the main pillars of growth within the Singapore economy are somewhat lacklustre, the MAS should remain as accommodative for as long as possible."