The Monetary Authority of Singapore (MAS) implemented a two-step tightening. USD/SGD fell sharply to the low 1.35 area after the announcement. However, given expectations of further Fed hikes, the downside in USD/SGD could be restrained and economists at Commerzbank see continued sideways trading within the 1.34-1.38 range.

Subtle aggressive tightening by MAS

“MAS delivered an exquisite policy tightening, one that was subtle and more aggressive than at first glance. They did a two-pronged approach by way of 1) a shift up in the SGD NEER mid-point to the prevailing level; and 2) a further increase in the slope or appreciation path.”

“Inflation is MAS' top concern. This is not only due to the commodity shock but also from rising domestic price pressures. MAS revised up this year’s headline inflation forecast to 4.5-5.5% from 2.5-3.5% previously.”

“Expectations of further Fed hikes are likely to temper the downside and we could see continued sideways trading between the 1.34-1.38 range.”