MAS preview: Expect no change in FX policy in April - Nomura

The Monetary Authority of Singapore (MAS) is likely to maintain its current neutral FX policy stance of a zero S$NEER appreciation slope at its upcoming April meeting, according to analysts at Nomura.

Key Quotes

“This is a close call; we currently assign a 60% probability to no change and 40% to a tightening (through a ‘slight’ increase in the slope). The main reasons for no change are the MAS’s view of restrained price pressures this year and trade protectionism.”

“Our preference is to be short S$NEER, especially if the spot S$NEER index is more than 1% above its mid-point. We also look for opportunities (towards the announcement date) to position for some SGD depreciation risk and a pickup in USD/SGD volatility.”

“Economics: Our heat-map shows that, after better-than-expected 2017 GDP growth, economic activity may be cooling in January and February. This is consistent with still subdued demand-side inflation pressures, notwithstanding signs of an improvement in overall labour market conditions last year.”

“Rates strategy: The MAS maintaining a neutral stance at its April meeting does not bode well for our outright receiver view in SGD rates. That said, we see ample reasons to stick to our receive SGD IRS vs USD IRS in 3yr-5yr bucket. We convert our small outright receive exposure into a spread against USD IRS.”