The MAS's aggressive tightening bias continues to drive SGD FX outperformance, following last week’s out of cycle move. The SGD NEER is now up just over 5% on levels compared to a year ago. This is the firmest pace since 2013.
- NEER YoY momentum is getting closer to headline CPI changes, although it is above core inflation momentum, see the first chart below.
- Next Monday delivers June CPI data where the market expects another pick up. Headline inflation is expected to rise to 6.0% YoY, versus 5.6% previously, while core is forecast to rise to 4.2% from 3.6%.
- Not surprisingly, the general trend has been for positive inflation surprises. In the past 6 prints the cumulative upside surprise has been +0.85ppts, although this is down from the +1.7ppts peak in March for this metric. On core inflation the cumulative upside surprise is a more modest +0.15ppts for the past 6 months.
- Additional upside surprises on Monday will reinforce the bias the MAS has more work to do in October. It should also keep the SGD NEER uptrend in place. The main risk is a sharper than expected slowing in global growth.
- Note the NEER is still some distance from the top end of the band according to Goldman Sachs estimates, still around -1% at this stage.
Fig 1: SGD NEER & Measures Of Singapore Inflation
Source: MNI - Market News/Bloomberg