Trade tensions a factor in keeping Singdollar appreciation mild: Analysts' reactions

Trade tension was a factor in Singapore's decision to keep its return to an appreciation stance mild, said DBS.
Trade tension was a factor in Singapore's decision to keep its return to an appreciation stance mild, said DBS.PHOTO: REUTERS

SINGAPORE - The Monetary Authority of Singapore (MAS) earlier on Friday (April 13) announced it would tighten monetary policy, slightly increasing the slope of the Singdollar nominal effective exchange rate (S$NEER) policy band to allow for "modest and gradual" appreciation of the currency.

Here are some reactions from economists to the Singapore central bank's move:

DBS: Trade tension was a factor in Singapore's decision to keep its return to an appreciation stance mild. The MAS slightly increased the slope of the nominal effective exchange rate policy (S$NEER) band probably to the appreciation pace of 0.5 per cent a year set before the neutral stance. The decision to link the measured adjustment to global trade tensions, coupled with a stable growth/inflation outlook for Singapore suggests no urgency to follow through with another tightening at the next review in October.

Selena Ling, economist, OCBC Bank: In our view, there is no immediate presumption at this juncture that a further move may be warranted at MAS' next monetary policy review in October unless the inflation trajectory picks up faster than expected. MAS is now likely to allow the S$NEER to continue to drift within the slightly steeper slope in a path consistent with a modest and gradual appreciation path, while closely monitoring economic developments.

Jeff Ng, economist, Continuum Economics: We think that the MAS has increased the slope slightly in line with our forecast of a 0.5 per cent per annum increase of the S$NEER. MAS now seems to be watchful of rising core inflation risks. We have been flagging that the buoyant economic outlook should filter through to domestic oriented sectors and also increase price pressures.

Our initial thought is that MAS will increase the slope again to 1 per cent in October, barring any significant downside risks to trade. This should be supportive of the SGD. We expect USD/SGD at 1.29 end-2018.