FX comment – MAS to shift to neutral S$NEER policy?

by: Roy Teo

  • MAS to move to neutral S$NEER policy after weak Q2 GDP?
  • SGD to decline to 1.40 by the end of 2015


MAS to move to neutral S$NEER policy after weak Q2 GDP?

We now think that the Monetary Authority of Singapore (MAS) is likely to shift the current modest and gradual appreciation path of the S$NEER to neutral in the next monetary policy meeting in October after this morning disappointing Q2 GDP advance estimate. The Singapore economy contracted 4.6% qoq, reversing a 4.2% expansion in the preceding quarter. Year on year terms, the first half economic performance was the slowest since 2009. In addition, core inflation in April and May were also lower than the MAS’s estimate of 0.5-1.5%.


SGD to decline to 1.40 by end 2015

The Singapore dollar (SGD) was sold off to above 1.36 against the US dollar after this morning Q2 GDP release. Immediate resistance at 1.3633 is likely to be tested. We judge that the S$NEER is too strong after its 2% appreciation since the last monetary policy meeting in April. We estimate that the S$NEER is now around the middle of the policy band, which we think are good levels to fade. We maintain our 2015 year end USD/SGD target of 1.40.