Singapore won’t join Asia’s dreaded currency wars, say analysts

The MAS won’t ease again in 2016.

Some analysts fear that a devaluation war might be brewing between Asian central banks, but the Monetary Authority of Singapore (MAS) is expected to keep out of the fray if such a battle materializes.

According to HSBC, the MAS is expected to remain on hold this year following two policy moves last year, which caused the Singapore dollar to weaken against the greenback.

The MAS is unlikely to ease policy again on back of weak growth and inflation forecasts, coupled with other factors such as tightening by the Fed and the desire to avoid a tightening of liquidity in the Singapore financial market.

“We expect the MAS to remain on hold as the central bank and government’s expectations have been tempered. There is also the more fundamental concern that tweaking the SGDNEER has a much more muted effect on the economy now given the prevalence of services,” HSBC said.

Meanwhile, OCBC notes that while it is still premature to call for a third monetary policy easing, developments involving the Chinese yuan will be the key data point to watch this year.

“At this juncture, it is premature to call for a third monetary policy easing, given that growth and inflation settings have not deviated significantly from policymakers’ expectations. One unknown is whither the CNY policy direction which could have a profound effect on Asian currencies’ bearing this year,” said OCBC.