From the SGD Dollar Battlefront – SGD MAS Monetary Policy Statement

” MAS will therefore maintain the policy of a modest and gradual appreciation of the S$NEER policy band.  There will be no change to the slope and width of the policy band, as well as the level at which it is centred.  This policy stance is assessed to be appropriate in containing inflationary pressures and keeping the economy on a path of restructuring towards sustainable growth.  MAS will continue to be vigilant in assessing external economic and financial developments, and their impact on the Singapore economy.”

My unbiased opinion as follows.

The previous quarter’s GDP was revised to +0.2% qoq growth and thus Singapore missed a technical recession. Great ! But PM Lee already let the cat out 2 days ago.

Oct. 9, 2012 (Xinhua) — Singapore Prime Minister Lee Hsien
Loong has hinted that the city state may well avoid a technical
recession as the economic growth figures for the second quarter
may be revised upwards to positive grounds, local media reported
on Wednesday.

The market reacted almost as if Singapore just announced a GDP growth matching last year’s casino stimulus effect. USDSGD recorded an intraday low of 1.2199, over 200 bp from mid NEER and continue to hold to the strong side.

Now, lets examine the facts.

1. GDP contracted 1.5% on the quarter.

2. The global growth outlook is bleak.

3. Asia is countering this by increasing domestic incomes and thus, demand. Nonetheless, the GDP growth will be fragile and determined by policy actions in Europe and China.

I view the situation as such.

1. The unchanged band and slope will be a deterrent to foreign money leaving Singapore because leaving it here will net you up to 2.5% when you leave.

2. More foreign inflows can be expected to come until they run out of assets to buy or when they start to think a little more logically that perhaps the SGD dollar is overvalued (ie. questioning the authority of the MAS on the subject).

3. The risk of an easing in April 2013 has increased considerably now particularly if growth continues to be lackadaisical and inflation dips.

4. Property prices will be supported and remain elevated and interest rates will continue to be suppressed which could contribute to inflation ?

Lets take a look at the monetary policy statements since they started standardizing the releases semi annually.

Notice a trend. It is always appreciating.

And it only ever appreciates. Check out this 30 year chart.

I have been eavesdropping on all the street talk this morning after the MPS. The only happy people are the hedge funds and likes who know about the policy loophole and the need to “always appreciate”. They do not care. Most of them do not even live here anyway.

Even I have a happy smirk because I called their bluff too and went for the illogical outcome for once, aligning myself to the hedge funds.

You know who is sobbing ?

My girlfriend who services corporate customers like the SMEs and family run businesses. They are in the export business, most of them. They took the chance to hedge their earnings last week when the USD/SGD came off because they sort of believe that the government will not be so predictable to sacrifice the manufacturing part of the economy to benefit foreign inflows. These people live in Singapore.

Some of them are getting margin calls now as I write.

Take a good look at the deep blue chart above again. Its mostly filled blue candles which is SGD appreciating as usual. The big white ones are from the Asian Crisis, the gulf wars, and more recently, the Lehman crisis.

That is what happens when money leaves. faith is lost and the fairytale ends.

Most of us are not engaged in the export sector and will not even bat an eyelash on this MPS. What good would it do us if the SGD were to weaken ? Counter intuitively, perhaps we are not the main beneficiaries of SGD’s strength as well ?