Déjà vu: Is the MAS crashing into another unscheduled easing?

Deteriorating economic conditions trigger a January flashback.

A tepid economic growth has always signified that the spotlight would shine the central bank’s way, and a weaker than expected easing this October has only raised more questions than answers for Singapore’s monetary authority.

While the MAS has already shed some light into the issue, stating that a more aggressive easing was unwarranted given the present economic conditions, analysts are suggesting another unscheduled meeting might be just around the corner for the central bank.

According to analysts from BMI Research, while the current conditions point toward holding off easing until the next meeting in April 2016, the MAS could be nudged into another spontaneous easing as the global economy crumbles.

“We do not expect any of these conditions to abate in the near future, and therefore see a moderate likelihood of further adjustments from the MAS, potentially even coming outside of the central bank's regular bi-annual policy meeting schedule,” BMI Research said.

MAS noted that the recent January meeting caught the market off-guard and sent the currency plummeting over the next two weeks. This is in contrast with the October easing, that while less aggressive, led to a 2.6% rally in the SGD.

Meanwhile, BMI explains that the bi-annual meeting system of the central bank makes it difficult to adjust to more spontaneous market developments, leading to unscheduled meetings to patch things up.

“While the MAS prefers to keep its decisions within its set bi-annual framework in order to provide as much clarity as possible regarding the Singapore dollar (as the stability of the currency is an integral factor in Singapore's status as a global ﬁnancial centre), high levels of external volatility amid a slowing global economy and a potential EM crisis could warrant further action,” BMI Research added.

On the other hand, the SGD has been falling against the USD over the past two years, though it has been largely stable in real effective terms. BMI says the latter has a greater effect on MAS’ decisionmakers, as this gauges the SGD’s competitiveness better.

“More speciﬁcally, the SGD has been weak against the Chinese yuan (which remains in a de facto peg to the USD despite discussions of liberalisation) but strong against the Malaysian ringgit, Indonesian rupiah, Japanese yen, and euro,” BMI says.

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