SINGAPORE (Bloomberg) - Singapore's dollar slid to a six-year low after China's central bank reduced its reference rate for the yuan by the most since August. Barclays said further declines are set to slow as the currency is probably close to the bottom of the central bank's policy band.
The Monetary Authority of Singapore (MAS) guides the local dollar against an undisclosed basket of currencies of its major trading partners and competitors. The currency is "pretty close to the bottom end of the band" based on Barclays's calculations, said Mitul Kotecha, the bank's Singapore-based head of Asia currency and rates strategy.
"The Singapore dollar is one of the currencies that's more susceptible to a depreciation of the yuan," MrKotecha said. "I'm a bit more skeptical of further sharp declines in the Singapore dollar given the fact that we're already where we are trading relative to the band."
The Singdollar tumbled as much as 0.5 per cent on Thursday to S$1.4431 against the US currency, the weakest level since September 2009. It pared declines to be little changed at $1.4349 as of 12:15 pm in Singapore amid speculation China's central bank had propped up its currency in the offshore yuan market.
Singapore's central bank intervenes to keep the exchange rate within an unspecified band and changes the slope, width and center of that band when it wants to adjust the pace of appreciation or depreciation of the local dollar.
Analysts predict Singapore's currency will trade at S$1.44 at the end of the first quarter, before weakening to S$1.47 by year-end, according to median estimates in a Bloomberg survey.