SINGAPORE: In the past two consecutive years, the Singaporean dollar has outperformed its Asian counterparts. The Monetary Authority of Singapore (MAS) holds the key to once again leading the Singaporean dollar to a possible three-peat in 2024, The Edge Singapore reports.
In 2023, the Singapore dollar witnessed a 1.5% gain due to the MAS maintaining its policy band with an appreciating bias during both the April and October meetings to counter inflation.
Economists speculate that MAS will likely uphold this stance in the coming year, and some even anticipate further tightening if inflation remains a challenge.
Brian Tan, Senior Regional Asean Economist at Barclays Bank Plc in Singapore, noted in a recent client note, “While we continue to expect the MAS to refrain from adjusting FX policy through 2025, the risk of a 50 basis-point slope increase has risen.”
He pointed to core inflation, which has proven “stickier than its historical average.”
Unlike most central banks that use interest rates to manage their economies, MAS influences the local currency, determining the slope, width, and mid-point of a policy band for the Singapore dollar’s nominal effective exchange rate (S$NEER), measuring the Singaporean dollar against its trading partners.
Despite a downward trend in inflation since early 2023, with the core Consumer Price Index (CPI) dropping to 3.2% in November from 5.5% in February, it remains above the five-year average of 2%. This gives the central bank a reason to maintain its strengthening bias for the currency.
Additionally, as shown in the government data on Tuesday, the underlying strength of the economy, with a 2.8% GDP expansion in the fourth quarter, surpassing the median economist forecast of 1.8%, may further support the Singapore dollar.
Vishnu Varathan, Head of Economics and Strategy at Mizuho Bank Ltd. in Singapore, warned that even if the MAS maintains its appreciative settings for the currency, it doesn’t guarantee the Singapore dollar will lead again.
“With the S$NEER nudging up against the top end of the policy bands, scope for sustained SGD outperformance is greatly diminished,” he stated. Varathan believes the “is more likely than not to be a middling currency.”
A noteworthy change occurred at the MAS October gathering, where annual meetings doubled to four. This means that traders will gain insight into the central bank’s policy later in January, rather than waiting until April, as was the practice in previous years. /TISG