Singapore Dollar Soars After Hawkish Adjustment To S$NEER Policy Band

The Singdollar soared as the local monetary authority tightened policy by re-centring and slightly raising the slope of the Singapore dollar nominal effective exchange rate (S$NEER) policy band, while keeping its width unchanged.

• In its monetary policy statement, the MAS warned that "in the quarters ahead, consumer price inflation in Singapore will increase by more than previously anticipated." The Monetary Authority revised its 2022 CPI and core CPI inflation forecasts to +4.5-5.5% (prev. +2.5–3.5%) and +2.5–3.5% (prev. +2.0–3.0%) respectively.
• Note that all 16 economists surveyed by Bloomberg predicted that the MAS would tighten policy, but they disagreed on which of the three S$NEER band tools would be used. All but one forecast the steepening of the band's slope and half of them anticipated its re-centring, with the latter likely behind the Singdollar's reaction rally.
• Raising the slope of the currency band is the most commonly tool used by the MAS, while re-centring effectively represents SGD devaluation and is normally used to respond to near-term pressures. Widening the S$NEER band is least frequently used and serves to manage currency volatility.
• The MAS statement was released alongside Singapore's advance Q1 GDP data, which suggested that the economy grew 3.4% Y/Y in the three months through Mar 31, missing the median estimate of +3.8%.
• Spot USD/SGD tumbled in defiance of recent technical signals. It dipped well past the neckline of a double bottom structure, suggesting that the pattern has failed. The sharp sell-off comes despite the completion of a golden cross earlier this week.
• The rate last changes hands at SGD1.3569, down 55 pips on the day. The key near-term support has been defined at SGD1.3522, which limited losses on Mar 31. Bulls need to reclaim Apr 11 high of SGD1.3673 before setting their sights on Mar 15 high of SGD1.3688.