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SGD: MAS preview - Westpac

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Apr 8, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    Sean Callow, Research Analyst at Westpac, suggests that the MAS semi-annual policy announcement will be delivered Thursday, along with Singapore's advance Q1 GDP.

    Key Quotes

    “The Monetary Authority of Singapore’s semi-annual policy review is set for 8am local time (10am AEST) on Thu 14 April, at the same time as the advance reading on Q1 GDP. In October, the MAS noted a slightly weaker than expected growth profile but little change in its core inflation view. As a result, they “reduced slightly” the pace of appreciation of the SGD nominal effective exchange rate (NEER) policy band, though still described this pace as “modest and gradual.”

    This very gentle appreciation pace is a clear barrier to further monetary easing at this meeting. Q1 GDP is likely to be flat or slightly negative, but this will be seen in the context of the headline 6.2% SAAR burst of growth in Q4 (i.e. 1.5% q/q).

    So a broadly stable growth outlook argues for no change in already accommodative monetary policy. Inflation meanwhile shows the familiar global divergence between headline/total inflation and core CPI. Singapore Feb CPI printed at -0.8% y/y, weighed by housing & utilities (-4.1%) and of course transport, -2.9%. But the MAS core measure excludes the accommodation and private road transport components; it rose 0.5% y/y. MAS and MTI said core inflation is expected to rise gradually over 2016, to average 0.5-1.5% y/y. Wages growth is seen as supportive but global factors should cap the rise.

    This all points to one of the less eagerly anticipated MAS reviews in some time. SGD “modest and gradual appreciation” should be maintained for the next 6 months. Having passed on the option last Oct to widen the band ahead of the anxiously anticipated first post-GFC Fed rate hike, the width should be kept at +/-2%. As our chart shows, on our estimates, SGD NEER is currently comfortably placed well inside the policy band.

    USD/SGD should show little response to a steady hand from the MAS on the day. But multi-month, we see risks on the pair tilted firmly to the upside, given our call for 2 more increases in the Fed funds rate before year-end. A "modest" SGD annual appreciation would not preclude USD/SGD grinding back to the 1.42-1.44 area during H2 2016.”
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