MAS reduces SGD NEER policy band slope slightly

The Monetary Authority of Singapore (MAS) reduced the slope of its SGD NEER policy band slightly on 14 October - to 1% from our previous assumption of 1.5%. All other policy parameters (width of the policy band, level of the band's midpoint) of the SGD NEER were maintained. The outcome was somewhat unexpected.

Furthermore, the market reaction following the announcement was closer to the call for the MAS to leave its policy unchanged: USDSGD fell 0.6% and the SGD NEER strengthened 50bp, an unusual reaction to a proper easing move. Most importantly, the MAS maintained its stance of gradual appreciation, whereas the market expected the Authority to move to neutral (zero slope) stance.

Overall, the token easing was consistent with the view of no material deterioration in the outlook for growth and inflation amid the still-tight labour market. More importantly, it does not signal the additional policy easing in April 2016 is likely, unless there is a significant worsening in the external outlook or signs of a clear and systemic external shock, says Barclays.

Coupled with stronger-than-expected Q3 GDP growth, the MAS seemed more relaxed over the economy and maintained its 2015 growth forecast, added Barclays.