USDSGD : The Monetary Policy In Dining Deals

Someone mentioned to me in passing the other day that they thought that the UOB 1-for-1 dining deals are deflationary. What else will we have then, for the element of truth in that comment ? And hopefully, that deflationary aspect would count against increased and more frequent retail spending.


The relationship between inflation and the currency has become strained in Singapore’s case for the past month as the currency rallied 4.1% in March, the biggest gains we have seen since 2009 despite YoY inflation dropping for 16 consecutive months in its longest slump since the 1970’s ( and threatens to oust the -0.9% one-touch 10Y record low back in Oct 2009.


Indeed, the YoY CPI numbers was -0.8% in Feb 2016, Nov 2015, Oct 2015 and Aug 2015 and the recent MAS Economic Survey saw GDP expectations fall to 1.9% for 2016 against December hopes of 2.2% YoY growth. The official inflation forecast for 2016 was slashed to -1% from 0% back in February while keeping the core inflation forecast unchanged at 0.5 to 1%. This prompted professional forecasters participating in the MAS quarterly survey in March to raise their expectations for SGD dollar to close 2016 at 1.45 against the USD and it was against a more optimistic inflation forecast of -0.2% (vs MAS’s -1%).

And what do we have instead ?

USDSGD at a 9 month low of 1.34 level and the same for interest rates which have fallen 0.5 to 1% year to date.

Inflation does not matter ?

Yes it does ! and it seems that Singapore is learning at last. The weaker currency will not help with inflation and only with imported inflation and they will leave fiscal policies, with all that technology spending, to do its job domestically. And yes, the IT guys will be the ones buying those Porsches and filling those fancy Sail or Sentosa apartments just like they are doing in San Fran and other tech hubs of the world.

So does it stand that MAS will stand pat tomorrow ?


Yet methinks the matter of the market reaction will be a separate affair after this entire currency gain episode has been inspired by the Malay, Ruble, Won, Kroner, Aussie and the rest of the oversold currency pairs that has seen a not so miracle “short covering” rally.


The MAS MPC is a non-event and if anything, the risk would for rhetoric to swing to the pro-inflation stance which is not too hard to expect and watch for that rebound in the USDSGD although the market position would like to see the USDSGD dip for some profit taking which is also not too hard to expect in the morning half of tomorrow.

The outcome for a higher USDSGD is inevitable given that economic circumstances are unlikely to improve in the near term for the region and the world. But we shall not be taking this to the extremes of 1.45 anytime soon, at the rate oil prices are firming up even as we partake in more delicious dinners that are half free.

Good luck !