MAS likely to widen band in April: analyst

Doing so would allow MAS to vent inflation pressure, experts said.

Apart from a further steepening of the S$NEER appreciation slope, analysts are also expecting the Monetary Authority of Singapore (MAS) to widen its policy band in April.

In a report, Morgan Stanley said doing the latter would allow room for near-term stronger S$NEER to vent inflation pressure.

A widening could also give the “​​optionality to allow more S$NEER weakness, should downside growth risks materialise,” which an upward re-centring would not allow, thus making the former a better option, according to the analysts.

“Besides, with a wider policy band, MAS can always re-centre upwards and narrow the policy band when growth risks recede later,” Morgan Stanley said.

The analysts added that band widening would be more “suited to the current macro backdrop” than re-centring since it’s the former is generally done to deal with increased volatility/uncertainty that Singapore is currently facing.

“The emergence of geopolitical tension and China's Covid-zero approach, as well as the supply- and demand-side shocks they pose, have led to downside risks to growth and upside risks to inflation – and raised volatility/uncertainty,” Morgan Stanley explained.

“A widened policy band allows the central bank to better balance between growth and inflation risks which are skewed in opposite directions,” they added.

Back in October 2010, the MAS also made the same move – steepening the S$NEER slope and widening the policy band at the same –- given the volatility across financial markets at the time.