SGD: MAS seen normalizing NEER policy band – DBS

DBS Group Research economist Philip Wee expect the Monetary Authority of Singapore (MAS) to reverse its earlier easing by normalizing the SGD Nominal Effective Exchange Rate (NEER) policy band. He anticipates higher core and headline inflation forecasts to reflect the energy shock, while noting that the Singapore Dollar’s (SGD) trade-weighted position is above the mid-point of the band.

Policy band reversal on energy shock

“After a week in which global markets clung to the hope of a de-escalation in the US-Iran conflict, market volatility will likely return following the failure of Sunday’s Islamabad Summit between US Vice President J.D. Vance and Iranian Speaker Mohammad Bagher Ghalibaf.”

“Deputy Prime Minister Gan Kim Yong has framed the Hormuz chokepoint as the worst since the 1973 oil embargo, signalling that Singapore treats this as an existential supply shock, not a standard price fluctuation.”

“Against this challenging landscape, we expect the Monetary Authority of Singapore to normalize its SGD NEER policy band by reversing the two slope reductions in January and April 2025. We see the MAS raising its core inflation forecast to 1.5-2.5% (from 1-2%) and the CPI-All Items projection to a higher level to reflect the current energy shock.”

“While our model shows the SGD NEER positioned around 1.8% above its mid-point, USD/SGD remains tied to the direction of the global USD, which is currently reprising its haven role on President Trump’s blockade decision.”

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)