SINGAPORE - The Singapore dollar sank to to a 4-1/2-year low after the central bank unexpectedly eased its monetary policy to allow for a weaker currency in the face of falling inflation and declining growth.
The Sing dollar slid as much as 1.1 per cent to 1.3570 per U.S. dollar at about 9:40am from 1.3426 on Tuesday, its weakest level since August 2010, after the Monetary Authority of Singapore (MAS) in an unscheduled move reduced the slope of their currency band, citing a weaker outlook for inflation.
"Our Q4 15 target of 1.4000 may be tested a lot earlier than expected," Suresh Kumar Ramanathan, head of regional interest rate and FX strategy at CIMB Investment Bank in Kuala Lumpur, told Reuters.
The Sing dollar recovered some of its earlier losses as the daily depreciation was seen excessive, leading to caution over possible intervention by MAS to curb volatility, Reuters reported.
After hitting a low of 1.3569, the Sing dollar was trading at 1.3518 to the US dollar at about 1:50pm.
Some investors had already expected MAS to ease monetary policy in its next scheduled review in April.
MAS - which targets the exchange rate for policy setting instead of interest rates - said that it would continue to stick with a policy of allowing the Singapore dollar to appreciate modestly and gradually against a basket of currencies.
Its move follows similar surprises in global monetary policymaking, including the Bank of Canada's shock rate cut last week and a larger-than-expected bond-buying stimulus programme by the European Central Bank - all of which were aimed at fighting off the threat of deflation from plunging oil and slowing global growth.
Markets are closely watching policy meetings of the Bank of Thailand and Malaysia's Bank Negara later in the day. Both monetary authorities were expected to keep interest rates unchanged, Reuters polls showed.