Singapore Dollar Poised for Further Weakness Amid Policy Shifts
Jan 20, 2025

Singapore Dollar Poised for Further Weakness Amid Policy Shifts

The Singapore dollar is expected to sustain its current downtrend as the Monetary Authority of Singapore (MAS) potentially shifts towards an easing stance, according to a recent report from Bloomberg. The anticipation comes as U.S. tariffs continue to impact the global economic landscape.

Currently trading near a two-year low against the U.S. dollar, the Singapore dollar has seen a flurry of bearish options bets, suggesting traders are preparing for the MAS's potential change in policy at their meeting slated for January 24, 2025. The consensus among 17 economists surveyed by Bloomberg suggests that the central bank could adjust its stance this month, although some analysts predict any shift might occur later in the year, providing a buffer to assess the implications of a possible Donald Trump presidency in the U.S.

Jennifer Kusuma, a senior rates strategist at ANZ Group Holdings Ltd., remarked that with core inflation in Singapore trailing below its long-term average, the MAS might consider a pre-emptive move to reduce the restrictiveness of its policy settings. "The MAS's focus will be on the downside growth risks in 2025, especially with potentially more protectionist US trade policy," she added.

Data from the IndexBox platform indicates that the Singapore dollar, which recently touched its strongest level against the greenback in a decade, has weakened to about 1.37 per dollar. A key factor in this depreciation is the declining core inflation rate, which has sunk below the 2% threshold considered stable by monetary officials.

Market watchers, including Lloyd Chan of MUFG Bank Ltd., anticipate that the MAS will relax policy by moderating the slope of the currency band. This view is shared by BNP Paribas SA, which projects the Singapore dollar will dip to 1.40 over the next year. Meanwhile, DBS Group Holdings projects the currency will drop to 1.39 by mid-2025, aligning with Goldman Sachs Group Inc.'s six-month target of 1.38.

For now, the central bank's parameter adjustments for the nominal effective exchange rate (S$NEER) remain speculative, as the MAS retains a degree of opacity regarding the details of its currency band mechanics.

Amidst these developments, Singapore's bond market remains strong, with local-currency corporate bond sales reaching a record S$31.2 billion in 2024. According to Bloomberg data, approximately one-third of this volume involved foreign borrowers.

As the situation unfolds, MAS will also have to consider the ramifications of U.S. trade policies on Singapore's economy, especially given China's significant presence in Singapore's trade network. Barclays recently estimated that the Chinese yuan comprises around 10% of MAS's currency basket, highlighting the interconnectedness of global trade dynamics and Singapore's monetary policy.

Source: IndexBox Market Intelligence Platform

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    9. Exports, In Physical Terms, By Country, 2012–2024
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  13. LIST OF FIGURES

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    10. Production Volume And Growth
    11. Exports And Growth
    12. Export Prices And Growth
    13. Market Size And Growth
    14. Per Capita Consumption
    15. Imports And Growth
    16. Import Prices
    17. Production, In Physical Terms, 2012–2024
    18. Production, In Value Terms, 2012–2024
    19. Production, By Country, 2024
    20. Production, In Physical Terms, By Country, 2012–2024
    21. Imports, In Physical Terms, 2012–2024
    22. Imports, In Value Terms, 2012–2024
    23. Imports, In Physical Terms, By Country, 2024
    24. Imports, In Physical Terms, By Country, 2012–2024
    25. Imports, In Value Terms, By Country, 2012–2024
    26. Import Prices, By Country, 2012–2024
    27. Exports, In Physical Terms, 2012–2024
    28. Exports, In Value Terms, 2012–2024
    29. Exports, In Physical Terms, By Country, 2024
    30. Exports, In Physical Terms, By Country, 2012–2024
    31. Exports, In Value Terms, By Country, 2012–2024
    32. Export Prices, 2012–2024

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