PREVIEW: Monetary Authority of Singapore semi-annual policy review due at 0100BST/1900CDT; No change in policy expected

The Monetary Authority of Singapore is to announce its semi-annual policy review today at 0100BST/1900CDT in which it is expected to remain on hold, with most economists calling for the MAS to maintain its FX based policy and keep a 0% appreciation path for the SGD Nominal Effective Exchange Rate.

As a guide, the MAS utilizes the exchange rate as its main policy tool in which it could tweak policy through either the mid-point, slope or width of the currency band. For example, the MAS could alter the mid-point of its SGD NEER band which if lowered, would effectively be easing policy by weakening the SGD against a basket of currencies. The central bank could also alter the slope of the trading band to adjust the path of the currency, or widen the width of the trading band which would be seen as a neutral measure but would allow the currency more room to fluctuate.

Expectations for the MAS to keep policy on hold have been supported by the commentary from the central bank as it has reiterated since the last meeting that neutral policy remains appropriate. In addition, the Final Q2 GDP figures showed the economy expanded by Y/Y 2.9% vs. Exp. 2.6% (Prev. 2.5%), while MAS had also raised its Q3 GDP growth forecast to 3.1% from 2.8% which suggests looser policy is currently unwarranted.

However, there are still some outside calls for a possible surprise with Maybank expecting the MAS to alter the slope to a slight appreciation bias given the recent economic data. There is also speculation from a few banks including HSBC that there is a chance MAS may drop its reference to a neutral stance being appropriate for an extended period of time, to pave the way for some policy tightening next year.

Today's announcement will coincide with the release of GDP figures for Q3 which would also need to be digested in terms of market reactions, while any surprise upward or downward alterations in policy would naturally be expected to impact SGD in tandem with the shift in bias. Focus will also be on whether the central bank drops its reference regarding a neutral stance being appropriate for an extended period of time, as this would likely be viewed as a somewhat hawkish shift and strengthen SGD.

13 Oct 2017 - 00:04- Fixed IncomeResearch Sheet- Source: RANsquawk

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