Some Thoughts on MAS Monetary Policy Statement

MAS media blackout period into their semi annual Monetary Policy Statement which is widely expected to be between 5th-12th April, along with the GDP number.

Some final headlines.

March 1 (Bloomberg) — Singapore Finance Minister Tharman Shanmugaratnam said there’s no need for monetary stimulus in a country with full employment, leaving policy makers reliant on unorthodox tools to prevent asset bubbles.

“We can’t just rely on exchange-rate policy and monetary policy to prevent bubbles from being formed,” said Shanmugaratnam, who is also deputy prime minister and chairman of the central bank. “You’ve got to find ways of throwing sand in the wheels, you’ve got to add some friction in the process.”

China is “fully prepared” for a currency war should one happen, central bank Deputy Governor Yi Gang said in Beijing on March 1, the official Xinhua News Agency reported. The nation will “take into full account the quantitative-easing policies implemented by central banks of foreign countries,”

There is a limit to how far Singapore can use the exchange- rate policy to contain inflation, central bank Managing Director Ravi Menon said in July. Still, the measure remains the broadest and most effective tool, even as it takes longer than usual to moderate price gains, he said. Jan 1 2013

“MAS faces twin challenges of stubborn inflation and sluggish growth,” said Wai Ho Leong, a Singapore-based economist at Barclays Plc. The central bank may “continue to maintain a gradual appreciation stance, even in an environment of below-trend growth,” he said.

 “We need to avoid competitive currency devaluations.” Ravi Menon, managing director of Singapore’s central bank, said today. Past episodes of currency friction “have only led to more misery and further downward spirals,” he said.

There is very little to say about the upcoming MPS in April much as I would love to sensationalise things and make it just a bit more glamorous and intriguing.

Faced with the dry truth, it is not time to hang up the cudgels and write off the SGD trade. The main trade will be the October MPS and not this one in April.

My take is this.

  • The Budget has taken the country by storm, including the population white paper. We can just imagine the next few months to be transition months and make sense of the slowing as economic numbers grind lower and inflation plateaus off.
  • Businesses are already feeling the heat and we are hearing many a household name restaurant close overnight on rent and manpower issues. Looks like we are paving the way for the “too big to fail” restaurant chains like the Tunglok’s and Crystal Jade’s.
  • The authorities are experimenting with various housing and car loan measures to cool the market down.
  • New developments in the form of a global currency war clearly demonstrates that Singapore is on the losing edge should the attack come to our shores.

Talk of Easing

There is a camp out there holding out for an easing out of MAS. Weakening the SGD to help the struggling exporters and take the peddle off a bit to stem the inflows into Singapore that threatens to overheat asset prices.

I cannot bring myself to believe that. Not when the Dow Jones Industrial Average is at historical highs and the STI not doing too badly. The imminent threat of a recession is miniscule.

Observing the patterns over the past 10 years. We note that they only act when things get bad.


The only times they re-centred lower were under drastic circumstances like SARS and the global financial crisis.

There lies a possibility of the trading band widening which allows for potential weakening is also an uncommon MAS practice.

Neutral Stance

This is the main call on the street. For an unchanged policy stance. It is based on inference from MAS rhetoric in the past months for a policy status quo while they adopt other approaches to cool the over heated asset markets to provide more equitable lifestyles for the general populace.

They would need a few months to assess the impact on the economy before fine-tuning the policy to adjust for changes. Besides, we have Malaysia heading into elections shortly. The outcome will be intricately tied to our fortunes as well, for the next few years.

A neutral stance the most likely outcome.

Strengthen The SGD

I like this one because I hate this path and I believe at least 1 eminent economist agrees with me.

Love it or hate it. Every April since 2010 has been the time for some form of strengthening.

For me, it looks like they intend to boost investor confidence in the strength of the economy and why not ? With the Dow at historic levels ? Things are perking up it seems and stocks are always ahead of the curve.

The 2013 Budget is a forward looking one with economic re-engineering in mind. To weed out the sheep from the goats. This is time to administer the harsh reality onto the businesses and make them shape up or ship out. No hard feelings here.

Whilst the CPI trend is now forecasted lower in the latest MAS Macroeconomic Survey, the number is still a troubling 3.6-3.8% for the year. As to whether demand will be managed lower, especially when wages are purported to increase, is a question best not asked.

Also note the side effects. More Singaporeans are going to be looking at that shoe box in London or condo in Iskandar or KL with the SGD’s strength.


Weakening 15% Neutral 60% Strengthening 25%.

Slope Unchanged for me but chances of Widening the band to accommodate currency fluctuations (with JPY accounting for an estimated 7-10% of the NEER basket) should not be discounted although it would send a mixed signal to the market.

I will not go off on a tirade here. It is enough that we are dealing with one of the most black-box central banks in the world. No hints, no clues while ECB, FED, BOJ, PBOC and even the regional central banks are yapping away.

Do you all feel that the winds are changing ? The increased transparency, public consultations and engagements ?

I believe so. And whatever the outcome of this MPS, perhaps this time MAS will tell us where they stand.