Here’s why analysts think the MAS will give in to easing the SGD rates

Weak oil prices could trigger another easing, says DBS.

While analysts are leaning on a prediction that the Monetary Authority of Singapore (MAS) is unlikely to lower the appreciation of the SGD, analysts from DBS says the central bank has ample reason to do so.

According to an analyst report by DBS, while Singapore has never hifted to a neutral exchange rate stance without negative economic growth, DBS believes that factors such as the weak oil price, lower import prices as well as the decline in the equity and property markets could still prompt the MAS to do so.

“Thereafter, given the weak economy, we expect the SGD NEER to remain in the lower half of the policy band,” DBS said.

Meanwhile, the analyst report added that it expects the GDP to increase by 1.3% yoy, below the 1.8% reading during 4Q15.

“The manufacturing sector has been pulled down by the marine and offshore engineering cluster, which could drag longer as oil price stays suppressed given the weak global supply/demand dynamics,” DBS said.

DBS added that regional competition in the electronics industry is also turning stiffer while manufacturing costs are rising, putting the pressure on the sector.

“Growth in the services sector remains resilient, supported by the wholesale and retail trade as well as the financial services industries. Still, the sector’s y-o-y growth figure has eased from 3.4% to 2.8%,” DBS said.

“Loan growth for Singapore banks remained at negative 1.2% in the first 2 months of the year, the slowest pace since March 2000. The moderation in China’s economy could result in the services sector losing further steam in coming quarters,” DBS added.