Introduction
The MAS surprised the SG financial market on 14th Oct 2021, by tightening monetary policy on Thursday.
How is it tightening?
In its half-yearly monetary policy statement, MAS said it would “slightly increase” the slope of the SGD NEER policy band from 0% prior.
Effectively, the MAS is trying to appreciate the Singdollar against its basket of major trading currencies.
Why is MAS trying to appreciate our SGD?
First, we all feel it already, and the MAS data confirms it as well, that things are getting more expensive in Singapore – Inflationary Pressures.The MAS also noticed that our SGD has been depreciating against our major trading currencies. That is happening because our major trading partner countries are feeling the inflation pinch as well and have been appreciating their own currencies to combat inflation.
When they appreciate their own currencies, our SGD will depreciate in response.
What’s the ‘Slope’ of the S$NEER?
The S$NEER is allowed to free float within an allowable range. Should it exceed the ends of the band, the MAS intervenes by buying or selling SGD.MAS can also change the slope, width and mid-point of this band to control the direction of SGD movement.
Changing the slope is the most commonly used method by the MAS to adjust the band.
Simply put, the slope determines the rate at which our SGD appreciates. If the slope is increased, this means the SGD will be allowed to strengthen at a quicker pace. It strengthens at a slower pace when the slope is reduced.
Why is this data important?
What can be concluded is the MAS has decided to use its softest, least intrusive SGD control method to allow SGD to appreciate in order to combat inflation.
How can we expect?
Hopefully lower inflation domesticallyThings have been getting more expensive, especially food prices, commodities and even essentials.
It is unlikely we will see prices fall, but at least to stabilise in Singapore and grow at a more sustainable rate.
Exports might be affected
Tinkering with currency is always a double edge sword. By appreciating the SGD, we pay less for imported goods and services.
The reverse happens for exports though – things leaving Singapore will be ‘felt to be more expensive’ in relative terms due to SGD appreciation.
This may hurt demand for Singapore’s exports and therefore our domestic production intended for global export.
Tinkering with currency is always a double edge sword. By appreciating the SGD, we pay less for imported goods and services.
The reverse happens for exports though – things leaving Singapore will be ‘felt to be more expensive’ in relative terms due to SGD appreciation.
This may hurt demand for Singapore’s exports and therefore our domestic production intended for global export.
Lower Interest Rates
In general this is due to oversea investors’ expectations of SGD interest rate earnings to decrease, compensated by the increase in SGD currency value.
The reverse happens for exports though – things leaving Singapore will be ‘felt to be more expensive’ in relative terms due to SGD appreciation.
Home owners can expect to be happy, especially those that have decided to go for floating based (SIBOR or SOR) home loans!
In general this is due to oversea investors’ expectations of SGD interest rate earnings to decrease, compensated by the increase in SGD currency value.
The reverse happens for exports though – things leaving Singapore will be ‘felt to be more expensive’ in relative terms due to SGD appreciation.
Home owners can expect to be happy, especially those that have decided to go for floating based (SIBOR or SOR) home loans!
Please note that all the information contained in this content is intended for illustration and educational purposes only. It does not constitute any financial advice/recommendation to buy/sell any investment products or services.
