Before We Turn Negative Again… Not A SGD Rates Prophecy !
Since the Apr MPS, the SGD has trended up the NEER band, pricing in about 1.2% appreciation in the next 12M. The topside, we assume to be 2%.
The rates have crashed along with the USD/SGD which has moved 125 bp up the NEER band since pre MPS (9 April).
The chart above compares the 6M SOR with the USD/SGD, 3M Libor, SG CPI YOY and 10Y SGD IRS over the past 4 years.
The USD/SGD (white line) and 6M SOR (orange line) have both gapped wide of each other, as compared 2008-2010. Note the huge gap in early 2011 which led to the massive plunge in Aug where 6M SOR fixed to a low of -0.99 %.
Inflation is still troubling, Mar CPI was 5.2% yoy. The highest in last 3 years has been 5.7% in Aug 2011, which coincides with the all time low in 6M SOR.
CPI counter trends the USD/SGD and this recent uptick to 5.2%, if sustained, suggests that USD/SGD may have more to fall and perhaps SOR with it ?
Year To Date SGD NEER
SGD has performed well ytd vs the basket as seen from the table.
I am not an expert on the mechanics of the NEER. Perhaps there is a chance that the fellow basket mates will retrace in the short term once the headlines turn positive.
But we must always bear in mind, the SGD policy only works one way. Appreciate or Unchanged.
Thus I will take the opportunity of any retracement to play for negative rates in 2H and revisit the good old times again.