SGD already sinking to lower limit of policy band, says DBS

Due to heightened market volatility.

The Singapore dollar nominal effective exchange rate (SGD NEER) is already hovering close to the floor of its undisclosed policy band, according to a report by DBS.

DBS noted that after managing to stay close to the mid point for several months, the SGD NEER has been easing to the floor of its appreciating policy band in recent weeks on back of increased market volatility.

“If this continues, the MAS would have two choices: spend reserves defending the band or relax the appreciation policy,” DBS said.

However, currency appreciation might be difficult to maintain in light of the risk of technical recession and negative full-year inflation.

“Challenges are compounded by potential capital flight that could result from higher US interest rates and / or fears of further yuan devaluation. All things considered, risks are rising that the MAS eases policy in October,” DBS said.