In addition, the Monetary Authority of Singapore lowered its core inflation target, opening the door for further easing this year, which may also weigh on the currency. The central bank uses the exchange rate as its main policy tool rather than interest rates. It focuses on the currency’s nominal effective exchange rate, referred to as S$NEER, which it allows to move within a policy band.
That rate is 1.1 per cent above the mid-level of the authority’s policy band, according to estimates from Philip Wee, senior currency economist at DBS Bank Ltd. He believes it “should be closer to mid given where the new and lower inflation and GDP growth forecasts are”.
“It is possible that the S$NEER may start to ease towards the midpoint when the hard data starts to snap toward the pessimism that is increasingly reflected in the survey data,” said Moh Siong Sim, FX strategist at Bank of Singapore.
What is more, the Monetary Authority of Singapore may decide it needs to act to resolve market imbalances.
