Monetary Authority of Singapore sets zero appreciation path

[Showster]

 

This stance will change the price of goods and services in SG. I think it is a necessary policy move at some juncture, but the effects on the population may not be very positive.

 

http://www.straitstimes.com/business/economy/mas-sets-zero-appreciation-path-for-singdollar-with-switch-to-neutral-policy-stance

 

Monetary Authority of Singapore sets zero appreciation path for Singdollar with switch to neutral policy stance

 

Marissa Lee

 

SINGAPORE - The central bank will set the rate of the Singapore dollar's appreciation to zero per cent, in a move to support economic growth against a dimmer global economic outlook since its last meeting.

The Monetary Authority of Singapore (MAS), which uses the currency rather than interest rates to guide the economy said on Thursday (April 14): "This is not a policy to depreciate the domestic currency, and only removes the modest and gradual appreciation path of the S$NEER policy band that was in place."

The Singapore dollar tumbled 0.9 per cent to $1.36 levels to the US dollar on the news. At 8:36am, the Singdollar was trading at $1.3626 to the greenback from Wednesday's close of $1.3501.

The Singapore dollar has strengthened more than 5 per cent versus the greenback this year as traders pushed back forecasts for when the Federal Reserve will raise US interest rates due to heightened global risks.

Thursday's shift to a "neutral poliy stance" is a departure from the policy of modest and gradual S$NEER appreciation that the MAS had adopted since April 2010, after the last financial crisis. The Singapore dollar nominal effective exchange rate, or S$NEER, is a trade-weighted exchange rate in which the currencies of Singapore's larger trading partners bear more weight.

 

 

The MAS move comes as a surprise to the market - 12 of 18 private sector economists polled by Bloomberg had expected the MAS to maintain its current policy stance at the scheduled bi-annual meeting, rather than ease.

MAS eased policy in January and October last year, both times reducing the slope of the Singapore dollar's appreciation path.

MAS said on Thursday: "Compared to expectations in October 2015, the Singapore economy is now projected to expand at a more modest pace this year, against the backdrop of a less favourable external environment. MAS Core Inflation is likely to pick up gradually over 2016 as the disinflationary effects of Budgetary and other one-off measures fade. However, the increase in core inflation will be milder than earlier expected."

"CPI-All Items inflation will remain negative throughout 2016. Over the medium term, core inflation is expected to average slightly below 2 per cent."

The central bank adjusts the pace of appreciation or depreciation of the Singdollar by changing the slope, width or centre of the band. It does not disclose details of the basket, the band, and the pace of appreciation or depreciation. The MAS holds its next policy meeting in October.

 

Edited April 14, 2016 by Showster

[Mustank]

now buy amazon taobao more exp liao

[BenTong]

It's call "mai la Mai la" policy

[Somewhat1975]

MAS acted like those cops in the movie, only appear when everything is over.  They start to ease when the economy just about to turn the corner. 

[Showster]

http://www.straitstimes.com/business/economy/singdollar-tumbles-after-surprise-mas-easing

 

Singdollar tumbles after surprise MAS easing

Singapore's dollar dropped for a second day as the Monetary Authority of Singapore (MAS) said it will seek a policy of zero appreciation.PHOTO: THE NEW PAPER

SINGAPORE (BLOOMBERG) - Singapore's dollar fell the most since November after the central bank unexpectedly eased monetary policy to combat growing global growth threats to the trade- dependent economy.

The local currency dropped for a second day as the Monetary Authority of Singapore (MAS) said in a statement on Thursday (April 14) it will seek a policy of zero appreciation against an undisclosed basket of currencies.

The Singdollar fell 0.9 per cent to S$1.3626 against the US currency as of 8:35 am local time. That's the biggest decline since Nov 6.

The Singdollar also weakened against the Malaysian currency after the news, with the ringgit trading at 2.8541 to the Singdollar at 8:37 am, from Wednesday's close of 2.8678. At 9:25 am, the ringgit was trading at 2.8637 to the Singapore currency.

The MAS had a policy of modest and gradual appreciation since April 2010. The economy stagnated in the first quarter from the previous three months, when it expanded 6.2 per cent on a seasonally adjusted, annualized basis, the trade ministry also reported on Thursday.

 

 

"There's been a deterioration of economic conditions since the last meeting," said Philip Wee, senior currency economist at DBS Group Holdings. "If things have already worsened why wait for October to ease?"

This was the central bank's second unexpected decision in less than 16 months. It made an emergency policy change in January last year to combat the threat of deflation following a slump in oil prices. Twelve of 18 economists surveyed by Bloomberg predicted the central bank would maintain policy on Thursday, while the rest forecast it would ease.

MAS guides the local dollar against a basket of its counterparts and adjusts the pace of its appreciation or depreciation by changing the slope, width and centre of a currency band. It doesn't disclose details on the basket, or the band or the pace of appreciation or depreciation. The MAS has two scheduled policy announcements a year, one in April and the other in October.

"We thought the hurdle was high for a shift to neutral," said Khoon Goh, a senior foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. "Although the MAS said that they have no intention to depreciate the domestic currency, I don't see this as necessarily the end of the easing cycle. If downside growth and inflation risks remain, then the next easing move would be a re-centering in October."

 

[Angcheek]

now buy amazon taobao more exp liao

 

 

appreciated too much too fast also no good ...... as long as RM is low , its good hahaha

[Windwaver]

MAS acted like those cops in the movie, only appear when everything is over.  They start to ease when the economy just about to turn the corner. 

 

Guess in this case better late than never.

 

Frankly, MAS didn't have much of a choice when an open economy is up against big boys like China and US. The shift to neutral will mean it's good for job creation and businesses.

 

My personal opinion is that this will be the outlook until the end of the year unless something VERY POSITIVE turns up.

[Kusje]

now buy amazon taobao more exp liao

You worry more about the trinkets you buy from Amazon or your housing loan?

[Mustank]

You worry more about the trinkets you buy from Amazon or your housing loan?

 

     

[Hosaybo]

You worry more about the trinkets you buy from Amazon or your housing loan?

Maybe he full cash Liao....no more worries except Amazon and taobao

[Showster]

It looks like depreciation of SG currency in line with secret basket of currencies. Most currencies such as MYR, IDR and USD are depreciating badly in relation to goods and services, and MA is setting zero appreciation to some or all of them. RMB should be appreciating but also trying to depreciate. Please correct if there is anything I missed.

 

According to my interpretation, things will first start to get more expensive, leading to some kind of inflation, and then interest rates for SG will start to rise.

 

You worry more about the trinkets you buy from Amazon or your housing loan?

 

Edited April 19, 2016 by Showster

[Limwsv]

My understanding is different from yours.  

 

Interest rate is a function to attract funds from lender perspective and the cost of use of other people funds from a borrower perspective.

 

The last few years, the whole world awash with money as investors head out of USA to find better returns.  At the same time, SGD appreciate against USD.  This drove lending rates down as local banks as there are lots of people out there wanting to lend to Singapore.

 

With the expected interest hike, many investors are preparing to return to US.  As they exit the Singapore financial systems, they drive USD up and SGD down.  And the local banks need to raise lending rates to retain some of this outflowing funds.  This in turn drives the rise in borrowers rate as the banks earns on the margin between the two rates.

 

So it is actually interest rates that drives inflation since the borrowing cost are passed on to consumers, price rise for the same amount of goods.

 

For the neutral stances taken by MAS, it means that MAS will buy and sell currencies in the basket to keep Singapore dollar at it current band.  So example, as funds exit Singapore, they sell Singapore dollar to buy US dollar, this forces the exchange rate downwards, SGD becomes cheaper.  So MAS will draw into its foreign exchange pool and do the exact opposite, sell USD and buy SGD to keep the exchange rate from dropping out of the band.

 

As to whether things get more expensive, it really depends on the forces and per goods instance.  Some goods are bought in USD, those may get more expensive, but at the same time, certain goods and services prices have been dropping worldwide, example crude oil and freighting charges.  So, if there's a global deflation, maintaining a neutral stance keep incoming production and consumption costs at previous levels, but allows exporters and manufacturers to better compete in the global economy by keeping their prices (sans cost) lower through the function of lower exchange rates.

 

 

 

 

[Kusje]

It looks like depreciation of SG currency in line with secret basket of currencies. Most currencies such as MYR, IDR and USD are depreciating badly in relation to goods and services, and MA is setting zero appreciation to some or all of them. RMB should be appreciating but also trying to depreciate. Please correct if there is anything I missed.

 

According to my interpretation, things will first start to get more expensive, leading to some kind of inflation, and then interest rates for SG will start to rise.

 

In general: https://en.wikipedia.org/wiki/Interest_rate_parity

 

Sorry, in a meeting, no time to explain further.

[Showster]

Hi Bro Limwsv,

 

Bro, its not mechanism for currency adjustment against any specific currency, but maintaining zero appreciation against an undisclosed basket of currencies. The mechanism should be relatively complex due to the movement of the basket, unless we are referring to buy / sales of SGD and sales of multiple currencies.

 

Refer to the info last year when SG reduced the slope of appreciation.

 

https://sg.finance.yahoo.com/news/singaporeans-affected-mas-relaxation-monetary-233004784.html

 

But even in the mechanism described for interest rate parity, the end results is the same. Following your model, if currency X and Y both depreciates (the predominant situation for many of our trading partners) and country Z appreciates, we sell SGD to buy X and Y and we sell Z in exchange for SGD to depreciate SGD to prevent movement out of band.

 

The end product is there is still a net depreciation of SGD when Z is compared to SGD and the appreciation against X and Y has been lowered significantly as compared to previous years.

 

 

My understanding is different from yours.  

 

Interest rate is a function to attract funds from lender perspective and the cost of use of other people funds from a borrower perspective.

 

The last few years, the whole world awash with money as investors head out of USA to find better returns.  At the same time, SGD appreciate against USD.  This drove lending rates down as local banks as there are lots of people out there wanting to lend to Singapore.

 

With the expected interest hike, many investors are preparing to return to US.  As they exit the Singapore financial systems, they drive USD up and SGD down.  And the local banks need to raise lending rates to retain some of this outflowing funds.  This in turn drives the rise in borrowers rate as the banks earns on the margin between the two rates.

 

So it is actually interest rates that drives inflation since the borrowing cost are passed on to consumers, price rise for the same amount of goods.

 

For the neutral stances taken by MAS, it means that MAS will buy and sell currencies in the basket to keep Singapore dollar at it current band.  So example, as funds exit Singapore, they sell Singapore dollar to buy US dollar, this forces the exchange rate downwards, SGD becomes cheaper.  So MAS will draw into its foreign exchange pool and do the exact opposite, sell USD and buy SGD to keep the exchange rate from dropping out of the band.

 

As to whether things get more expensive, it really depends on the forces and per goods instance.  Some goods are bought in USD, those may get more expensive, but at the same time, certain goods and services prices have been dropping worldwide, example crude oil and freighting charges.  So, if there's a global deflation, maintaining a neutral stance keep incoming production and consumption costs at previous levels, but allows exporters and manufacturers to better compete in the global economy by keeping their prices (sans cost) lower through the function of lower exchange rates.

 

[Limwsv]

Hi Bro Limwsv,

 

Bro, its not mechanism for currency adjustment against any specific currency, but maintaining zero appreciation against an undisclosed basket of currencies. The mechanism should be relatively complex due to the movement of the basket, unless we are referring to buy / sales of SGD and sales of multiple currencies.

 

Refer to the info last year when SG reduced the slope of appreciation.

 

https://sg.finance.yahoo.com/news/singaporeans-affected-mas-relaxation-monetary-233004784.html

 

But even in the mechanism described for interest rate parity, the end results is the same. Following your model, if currency X and Y both depreciates (the predominant situation for many of our trading partners) and country Z appreciates, we sell SGD to buy X and Y and we sell Z in exchange for SGD to depreciate SGD to prevent movement out of band.

 

The end product is there is still a net depreciation of SGD when Z is compared to SGD and the appreciation against X and Y has been lowered significantly as compared to previous years.

 

Yes, you are right... but for illustration purposes... just use USD as an example.

 

The mix of currencies in the basket is not publicly revealed but there are some obvious choices.  The currencies mix are adjusted from time to time.  

 

Agree it is complex, there are a couple of instruments use to control the rates in the basket, not just plain buy and sell currencies.  otherwise very easy to detect MAS intervention.  Since the rates are control in a band, fluctuations are allowed, probably even big dips.  Eg suddenly SGD drops against USD to 1 USD to 1.5 SGD.  MAS may not intervene if the dip is transitory from MAS time perspective, ie maybe they will tolerate a sudden drop for 3 - 4 days.  

 

At the end of the day, MAS do not reveal how it controls the rates to avoid being targeted by currency speculators.  But publicly reveal its stance to give comfort to legitimate parties that need to know the direction of SGD.

 

BBTW, just to add... all this at the end of the day is to control the inflation within the target range.  Ie neither too much inflation nor too much deflation.  

Edited April 20, 2016 by Limwsv

[Showster]

I suspect the oldest trick in the book will be used partially or wholly to benchmark zero appreciation to net depreciating currencies.

 

After selling SGD to benchmark, if still not enough SGD, to print more SGD. It may be a kind of quantitative easing, just that it is not termed that way.

 

My suggestions only. Let me know what you think and do feel free to disagree.

 

 

Yes, you are right... but for illustration purposes... just use USD as an example.

 

The mix of currencies in the basket is not publicly revealed but there are some obvious choices.  The currencies mix are adjusted from time to time.  

 

Agree it is complex, there are a couple of instruments use to control the rates in the basket, not just plain buy and sell currencies.  otherwise very easy to detect MAS intervention.  Since the rates are control in a band, fluctuations are allowed, probably even big dips.  Eg suddenly SGD drops against USD to 1 USD to 1.5 SGD.  MAS may not intervene if the dip is transitory from MAS time perspective, ie maybe they will tolerate a sudden drop for 3 - 4 days.  

 

At the end of the day, MAS do not reveal how it controls the rates to avoid being targeted by currency speculators.  But publicly reveal its stance to give comfort to legitimate parties that need to know the direction of SGD.

 

[Limwsv]

I suspect the oldest trick in the book will be used partially or wholly to benchmark zero appreciation to net depreciating currencies.

 

After selling SGD to benchmark, if still not enough SGD, to print more SGD. It may be a kind of quantitative easing, just that it is not termed that way.

 

My suggestions only. Let me know what you think and do feel free to disagree.

 

Err. thats pretty standard around the world... everyone controls the money supply and the velocity.

 

Straight right out of classical economics, so I don't really see any issue?

[Freeder]

Simple say.. Hoot USD,JPY n GBP now ?

FD rates to rise ?Any advice ?