Putting the Funky SGD Policy to the Test

10 years since MAS formalised the SGD FX policy into semi annual statements and inflation targeting NEER adjustments.

Out of the 20 MPS we have had, there was only 1 time when the SGD was weakened i.e. recentred lower. 14 times we had the favourite “modest and gradual appreciation”, 3 “neutrals” and 3 “recentre ups”(1 of which was recentre up + modest and gradual).

If we take “recentre ups” and “modest and gradual appreciation” to be all in the same Strengthen category, then 80% of the time we have an ever stronger SGD that is constantly appreciating.

usdsgd 30 year chart

That is funky indeed because it just so happens that we have had 10 glorious years of growth, aided by the casino in between.

This appreciation business is fantastic if you do not think so hard or deep into it. It is basically a guarantee that the SGD will appreciate against the NEER basket which is as follows.


Couple that with a AAA sovereign rating and located in the heart of the Asian EM world of S.E. Asia, we have a heavenly combination in a QE world where money has no where to go (because the Swiss declared negative interest rates) and true to its promise, SGD has been ever appreciating since 2003.

Bank rolling on this is of course, the asset markets in particular, bonds.

Hedge funds are first in on the trade, central banks and global funds are all keen to include SGD into their portfolios.

The stars are not so aligned this time round. As quickly as the EM markets inflated, the profits are going home. Singapore bonds find themselves the 2nd worst performer this year amongst the lot (behind Switzerland).

Note the peaks in USDSGD with every plunge in GDP over the past 30 years.

usdsgd vs gdp 30y chart

Singapore has a trump card. She does not run a budget deficit which means she can stop issuing bonds anytime. Yet this is hardly supportive of a healthy capital markets.

The days ahead will be rocky especially if a slowdown hits. It is hard to justify the SGD’s strength even if we are in an inflationary-recession ?!

Protectionism is always the first option and we are seeing evidence of reducing supply to keep investors happy. That is not a long term solution to a market which grew mainly because a strong SGD policy. This excludes banks demand on account of reserve requirements.

Diversifying the investor base and boosting market liquidity should be the end goals. But how on earth do we get people to take us seriously ?

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