No Central Bank Left Behind – Singapore MAS's Surprise MPS

MAS joins in the fray ! and the SNB, ECB and FED fireworks !! No Central Bank will be left behind.

Link to statement :

For the record, this is not the first time there has been an unscheduled announcement. Post Sep 11, there was one as well due to the catastrophic nature of the event. This time, I am not so sure.

Could it be front running the FOMC tonight ? What is scaring them ? Is it Malaysia ? What happened to forward guidance ? Why ? Are we going INTO a RECESSION ? !!!

I suspect there has been a leak because someone was questioning me keenly about the forward books and reserves yesterday and it was no reporter but a hedge fund that I will never whistle blow upon.

The forward books have shrunk ! 66 bio to 46 bio between Jan to Nov 2014. Our international reserve assets have also fallen 5.9% year on year.

I have decided that we have to distinguish between the forward books and spot reserves since MAS published their Monetary Policy Operations Monograph back in 2013. The forward books are for the liquidity side of things as well as their intervention efforts which means the numbers can only be a gauge and not relied upon to ascertain their SGD intervention efforts.

Nonetheless, I am not sure why I am writing this today because the job belongs to those 750k per annum economists in our financial sector, each a Toto winner in their remuneration, no sour grapes here.

I feel like I should continue from our discussion last November on the Fair Value of USDSGD –

There are 3 aspects to it.

1. appreciation stance
2. pace of appreciation which is the slope of the curve (ard 2.5% annually)
3. bandwidth which is the tolerable deviation allowed (ard +/-2%)

Today’s surprise action in the grand scheme of the past 15 years.



The Sep 2001 out-of-the-blue widening of the band caused rates to shoot up quite abruptly, yet in the case this time round, WE WERE WARNED.

Remember all the articles about SIBOR we have been writing about ? And MAS harping about it for over 2 years.

Dec. 3 (Bloomberg) — Singapore’s central bank warned that rising global interest rates could weigh on household and corporate debt and pose risks for banks in the city-state.

I attach my last assessment of the latest Financial Stability Review –

words like LIQUIDITY, CORPORATE, CREDIT, BOND, PROPERTY and RISKS have grown larger

and my conclusion of “Thus for lucky Singaporeans, it will be harder to get rich but also harder to get poor.

Do take a read and realise where they are coming from.

I am not sure how many Singaporeans realise how drastic today’s action has been ? But we should also realise that MAS did withdraw their post Sep 11 widening within 3 months in Jan 2002 before we went into 0% appreciation for the next 18 months.

If I am right to assume that the slope has been reduced by 1%, in accordance with the lowered CPI forecast, then the current -132 bp from mid band is sort of fair.

sgd neer bp*taken without permission.

Where to from here ?

Well, if any readers have taken our advice for the best proxy hedge for their SGD in “EUR (60-70%) and the JPY (10-20%) and perhaps the rest in CNH”, like we said in Nov last year, they would be happy horses in the last days of the Year of the Horse.

The advice I would give today is not to sell SGD for the next few days because I am quite sure “intervention” will be at hand. And note that those are not my words but what I plagiarised from one of my friends.

The market is split between if the new slope is 1% or 1.5% and even at current levels, SGD is trading at -1.9% off the mid which is touching the lower bandwidth which we are assuming at 2% because that is unchanged.

I think we have room to go higher (depending on the FOMC and the EUR and JPY), but not in the next few days as the unwinds continue and outflows come.

The USDSGD may trend upwards in any global panic, but retain its strength against the rest of the world. Staying long USDSGD into the first quarter is a good idea with 1.35-1.40 in sight, buying into pull backs if we see 1.27-1.28 as we may perhaps see the potential of a second quarter of negative GDP growth.

Let’s hope they do not change their mind in April, when all this is actually supposed to happen !!