My USDSGD Monetary Policy Statement Piece – Forward Guidance Please

CONTINUED FROM Random Thoughts : Temasek, Olam and Watsons – When It is So Dumb, It Must Be Smart


My initial thought was that Temasek is getting out of SGD because Olam and Watsons are both USD and HKD based stocks. Then again, they would have been much more profitable in SGD dollars terms but for the exchange rate losses for all their non SGD investments dampened by the SGD’s strength.

It is because next month is … APRIL. And April is Singapore’s Monetary Policy Review month which has not been announced yet but I would expect it around the time of the GDP release which is between 10-14 April.

This monetary policy review cannot come at a more pivotal time with both the US and China, Singapore’s important trading partners after Malaysia, going on divergent policy paths ? The Fed going about tapering QE3 and China, freeing up her currency in a band widening exercise, discouraging the no brainer CNY trades, that is currently about the closest thing to the SGD NEER band out there.

Singapore’s policy action will be stating her stance – US or China ?

Singapore has always thrived on the predictability of the SGD which has worked too well for the past decade since the . Buy now, appreciation almost guaranteed, if not, your money back as long as Singapore is still in shape and not heading for a recession. Almost like the CNY, in a controlled environment.

Check out the 2 charts over the past decade.


Interestingly, it was exactly 10 years ago that Singapore switched to its current modus operandi of semi annual policy reviews and inflation targeting. And for 10 years, it has been a trader’s paradise, just banking on the no brainer trade in the SGD’s strength such that only local traders lose money, because they do not buy the story.

Well, I said before that inflation is a good thing for Singapore because it keeps interest rates low albeit ONLY IN SINGAPORE.

Yet, sadly, the biggest inflation hedge for the entire developed world so far would be the SGD dollar which has appreciated 33% in the past decade which benefited all the American, Brazilian, Japanese housewives (except the Swiss) who had the sense to just dump their money into SGD, without even considering the yield.


And I have been gently lambasting the fiasco of the situation for a long time now. Link to my earliest published post –

Tough choices lie ahead with the US firming up rates, China widening her band and Singapore inflation dipping. Many are scratching their heads as to the next policy move.

I say, DO NOT FEAR. We are somewhat ahead of the curve once again.

In March last year, MAS published their Monetary Policy Operations Monograph to clear up the air. It is a 2 step process.

1. SGD NEER basket – semi annual monetary policy statements
2. Short term liquidity – daily monetary management operations

Thus, they are able to keep the SGD strong which they still insist is to 1. rein in imported inflation and 2. to manage overheating demand and at the same time, keep short term rates low to 1. assist in countering the SGD strength and hot money inflows and, 2. help keep loans affordable.

Since October’s MPS, the SGD has weakened 1.76% against the USD which is about 60-70% of the basket despite the unchanged policy stance of modest and gradual appreciation. And since then, the MAS has come out to warn about interest rates again.

While headline inflation has dropped, the MAS core inflation has remained above 2% which is a damper.


I think we need some form of forward guidance and a stern warning like China’s. Afterall, the forward US Fed Funds projection has risen 0.25% for 4Q15 to 1% and 0.5% for 4Q16 to 2.25% according to JPM.

There are 3 things to look out for – appreciation stance, the slope of appreciation and the width of the trading band. Markets also look for the inflation and growth projection.

My view.

1. Appreciation – 99%.
2. Slope – no change 70%, reduce 30%, increase 0%.
3. Band width – no change 60%, widen 40%, narrow 0%.

Other possibilities –

1. Recentre the band – unnecessary. Recentre-ing has always been the last card to be played and has only occurred 3 times in the past decade.
2. Neutral policy stance – unnecessary as it would send a signal of disinflation, cause panic in the marketplace and there goes our safe haven status.

It is the Singaporean way to avoid confrontations but I see a small chance of a policy change which would help spur markets into action. Reducing the slope and changing the band width will serve as some form of forward guidance on interest rates and inflation expectations although I expect the guidance will come as a verbal one, as usual, which will be mostly ignored by local Singaporeans till rates do go up and people start throwing chairs through the windows of the banking halls again.

The reality is that not many people pay a lot of attention to interest rates in Singapore but 1% at the end of next year in America could do some damage, to say the least, and not to mention 2.25% expected for end of 2016.


Related Articles on October 2013 MPS