MAS Preview: Outlook improved but “extended period” still needed – ANZ

Khoon Goh, Head of Asia Research at ANZ explains that Singapore’s economic outlook has improved, but strength in the external sector is offset by weakness in domestic demand and as slack in the labour market means inflation pressures will remain muted. So, there is no urgency for the MAS to tighten policy, he further adds.

Key Quotes

“We expect the MAS to maintain their current neutral monetary policy stance at their October review. Importantly, we expect the “extended period” wording to be maintained.”

“The earliest we see MAS exiting from the neutral stance is in October 2018. With the next move more likely a tightening than an easing, the S$NEER will continue to trade between 0.5-1% above the midpoint.”

“Singdollar to be Dollar driven

• USD/SGD has been in a downtrend channel since January this year. The low of 1.3346 was reached in early September, and has rebounded since, driven primarily by a stronger USD. USD/SGD is approaching the top of the downtrend channel, which is an important resistance level.
• Although we expect the MAS to maintain their neutral stance and keep their “extended period” wording, with the next move more likely to be a tightening than an easing, the S$NEER will continue trading between 0.51% above the midpoint. Hence, USD/SGD will largely be driven by broad dollar moves.
• The risk is that the MAS statement is more upbeat and the “extended period” wording is removed or watered down. In that scenario, we could see the S$NEER trade higher, resulting in a move lower in USD/SGD. If the S$NEER gets towards 1.5% above midpoint or higher, we favour fading that move, and will go long USD/SGD at that point as the upper bound will limit how far SGD can gain from there.”