Singapore’s dollar is set to weaken because the central bank is likely to scrap its appreciation bias at a policy meeting next week, according to a growing group of forecasters.
Mizuho Bank Ltd and Societe Generale SA are defying consensus by predicting the Monetary Authority of Singapore (MAS) will adjust the slope of its nominal-effective-exchange-rate policy band to zero, from 1%, to counter slowing economic growth. Although Singapore’s dollar has already fallen 1.4% this year against the US currency, it is almost unchanged on a nominal-effective basis.
The local currency may “scream its way” to weaker than S$1.40 per US dollar if MAS adjusts its bias to zero, said Vishnu Varathan, head of economics and strategy at Mizuho in Singapore. “US-China tariffs escalation, US-EU tensions, political uncertainties and wobbling asset confidence all bearing down suggest that the MAS has cause to remove the slope.”
Singapore’s heavy reliance on trade makes the nation a bellwether for growth sentiment in Asia, along with nations such as South Korea and Taiwan. The MAS guides the local currency against an undisclosed basket and adjusts the pace of appreciation or depreciation by changing the slope, width and center of a band. It announces policy twice a year, with the next decision due on Monday.
“A large policy easing is most likely,” Societe Generale analysts Jason Daw in Singapore and Kiyong Seong in Hong Kong wrote in a research note.