SGD: MAS shifts to neutral in surprise move - ANZ

Research Team at ANZ, notes that the Monetary Authority of Singapore (MAS) shifted to a neutral policy stance today, which was a surprise as we did not think that the conditions for a move to neutral had been met.

Key Quotes

“The statement was dovish and there was a clear downgrade in MAS’s growth and inflation assessment without them downgrading their actual forecasts.

Tightening financial conditions and weakness in the USD and RMB NEER may have played a part in MAS’s decision to shift to neutral.

Today’s shift to neutral does not necessarily mark the end of the easing cycle which began in January last year. The next easing move will involve a re-centring lower of the S$NEER policy band, if downside risks to growth and inflation escalate.

FX View

• We expect the S$NEER to continue trading within the lower half of the policy band, and look for the lower bound to be tested at some point as the market will look for prospects of further easing.

• We have been recommending shorting SGD crosses, and continue to favour this approach. At present we are short SGD/CNH, SGD/MYR and SGD/THB.

Rates View

• The 6M SOR rate should move higher, which should result in a bear-flattening of the SGD IRS curve.

• The spread between SGD IRS rates vs. USD IRS rate should also widen, particularly at the front-end.”