MAS spends US$16.8bn to stop SGD strengthening

The central bank pumped US$8.2bn in the spot market and US$8.6bn in the forward market in October to keep the currency from appreciating beyond the bands that govern it.

In a statement, DBS said the intervention, the amount of which is equivalent to 90% of October GDP, has been seen only once before in history— in March 2008.

The bank noted the difference in the currency climate between 2008 and the present year.

“Back then however, interest rates – 3m Sibor for example – was running 150bps below the “TWibor” (a weighted average of US libor, yen libor and euribor). Currency appreciation of 1.5%-1.8% per year was barely enough to offset the negative interest rate differential and inflows soon petered out. That can’t be said today,” DBS said.

At present, 3m Sibor is running at 0.44%, 3bps above the TWibor, while the annual appreciation path of the Singapore dollar NEER is estimated to be at 3%.

Based on the figures, the current total carry stands at 303bps. “Three hundred and three basis points of carry is a lot higher than the 15bps-25bps that prevailed in Mar08. It doesn’t look like inflows into Singapore are likely to peter out so quickly this time,” DBS said.