Tip of the iceberg: Analysts fear further easing in April policy meeting

The MAS might flatten the NEER’s slope.

Analysts caution that the Monetary Authority of Singapore’s (MAS) unscheduled monetary policy shift yesterday might just be the start of an easing cycle.

According to HSBC, there is a risk that the MAS could ease further in April via a re-centring of the band lower, or by widening the band.

“We believe the SGD NEER will fall to the lower bound of the band before the April MPS, as the market will speculate that this is not a one-off easing decision, but the start of an easing cycle.We believe the urgency and the magnitude of the decision today reflects more than just concern about the domestic inflation outlook owing to lower oil prices. We believe MAS is more concerned than it let on about the global economy and disinflationary forces,” HSBC noted.

The central bank yesterday surprised many by choosing to reduce the slope of its policy band without changing its width and the level at which it is centred. An unscheduled policy shift last occurred in October 2001.

“This decision means the MAS wants to open up room for outright depreciation in the SGD NEER in 2015. A 0.5% slope implemented today, assuming no other changes in band parameters in the rest of year means the SGD NEER can depreciate 1.3% from where it was trading at end-2014. Had MAS left policy unchanged in 2015, even if combined with a drop in the SGD NEER to the lower bound, the SGD NEER can only at best manage zero percent appreciation in 2015. Had MAS waited till April 2015, the maximum depreciation would be 1%. This will be the first annual depreciation in the SGD NEER since 2011,” HSBC stated.