TD Securities: All Cards On The Table

TD Securities think the “next intuitive step is for the MAS is to re-center the midpoint. The S$NEER is now trading at 2.24% above the midpoint of the band according to our calculations, which is above the MAS "+/-2%" policy band threshold. We think the slope of the S$NEER band will only be raised "slightly" (i.e., 50bp) alongside a re-centering of the midpoint. Our estimate indicates that the slope is now steeper than its pre-COVID levels (i.e., +50bp), with the slope likely at +100bp/year after MAS actions in October 2021 and January 2022. Another 100bp of steepening of the slope seems too aggressive at this juncture unless the MAS is certain that core inflation will average above 3% this year. We expect the band to widen from "+/- 2%" to "+/- 3%". Geopolitical uncertainty has led to higher volatility in the financial markets and a band widening would allow the MAS flexibility to absorb such volatility if it is exhibited in FX fluctuations. MAS last widened the band in October 2010 and the Bank justified the move given "volatility across international financial markets".”