SINGAPORE – For the past two years, the Singapore dollar has outshone many of its Asian counterparts, and the Monetary Authority of Singapore (MAS) ma
SINGAPORE – For the past two years, the Singapore dollar has outshone many of its Asian counterparts, and the Monetary Authority of Singapore (MAS) may be key to a continued streak in 2024, reports The Edge Singapore. A gain of 1.5% in 2023 reflected MAS’s policy of an appreciating bias to tackle inflation, a stance the central bank is expected to hold steady next year.
Some analysts believe MAS may even tighten its policy if inflation remains persistent. According to Brian Tan, Senior Regional Asean Economist at Barclays, “While we expect MAS to keep FX policy steady through 2025, the risk of a 50 basis-point slope increase has risen,” citing sticky core inflation levels.
Unlike most central banks, MAS manages economic policy by steering the Singapore dollar’s nominal effective exchange rate (S$NEER) instead of adjusting interest rates. Despite a decrease in inflation rates since early 2023, core CPI remains above the five-year average of 2%, giving MAS further reason to support the currency’s strength.
Moreover, stronger-than-expected GDP growth in the fourth quarter of 2023, reaching 2.8%, has reinforced the dollar’s position. However, Vishnu Varathan of Mizuho Bank Ltd. cautions that MAS’s appreciation settings alone may not guarantee outperformance, noting, “With the S$NEER nearing the top of policy bands, scope for the dollar’s sustained outperformance could be limited.”
In a recent shift, MAS increased its annual meetings from two to four, providing traders with more frequent insights, including an upcoming review in January. This change allows MAS to more closely monitor and adjust for inflationary pressures, which could further influence the dollar’s position in the coming year.
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