Singdollar slide against US dollar won't prompt MAS shift

Singapore - The Singapore dollar's slide against the US dollar is unlikely to prompt any adjustment by the country's central bank because most other currencies are weakening against the greenback as well, analysts said.

The economic outlook for Singapore and the region is more likely to weigh on the Monetary Authority of Singapore's (MAS) policy decisions than the current currency volatility, they added.

The US dollar was worth S$1.4436 on the spot market as at 5pm on Friday, up from S$1.4372 the day before. The greenback, in fact, has been strengthening against almost every other currency since Thursday, when statements by the US Federal Reserve fuelled concerns that interest rates would be raised faster than earlier expected.

Despite falling against the US dollar, the Sing dollar has actually held up or even strengthened against other major currencies. On Friday, the Sing dollar rose against the sterling pound, to S$1.7943 per pound; the euro, to S$1.5063 per euro; and the Japanese yen, to S$1.2205 per 100 yen. The Singapore dollar weakened slightly against the Malaysian ringgit, however, to S$0.3224 per ringgit.

That relative stability outside of the US dollar may make it unlikely for MAS to intervene, said Jeffrey Halley, senior market analyst at OANDA. MAS manages Singapore's monetary policy by controlling the midpoint, width and slope of the Sing dollar nominal effective exchange rate (S$NEER), a trade-weighted exchange rate band within which MAS tries to keep the Sing dollar.

"Most of the components in the S$NEER I would think are weakening as fast as the US dollar is strengthening," Mr Helley said.

Mizuho Bank economist Vishnu Varathan said that MAS could yet adjust its policy, but it would take a "discernable and appreciable negative shock to the economy, either via direct import of growth or from fairly elevated and more acute financial market turbulence" for MAS to step in at this stage.

The central bank is more concerned about the outlook for the economy, Mr Varathan said. "The bigger issue for MAS is really one of global demand remaining suppressed for longer," he added.

The economic impact of the strong US dollar may not have significant direct impact on the Singapore economy. A robust greenback might be helpful at the margin for exporters selling into the United States, but exports to other parts of the world and Asian tourist arrivals into Singapore could take a hit, Mr Varathan said.

OCBC fixed income analyst Nick Wong expected muted impact on Singapore-listed companies that have borrowings. Companies that have US-dollar debt tend to be the larger blue chips, he said.

"In general, most of the companies that borrow in US dollars tend to be the blue chips, and it's usually opportunistic because it was cheap," he said.

Mr Wong said that there was no broad systemic impact on the debt front, although some companies will be more exposed than others.

Companies that report their financials in US dollars and that have assets in Singapore may have to take a hit on their balance sheets, although that would not affect cash. However, companies that report in US dollars and have Sing dollar debt may find it easier to repay their borrowings.

Rising interest rates are likely to weigh more on companies' ability to access capital, Mr Wong added. "At this point, interest rates is the bigger issue," he said.

Mr Varathan said that competitiveness in today's economy has also moved beyond simply the value of a currency. Volatility matters too. "Stability is more important here than how cheap a currency is," he added.

This article was first published on December 17, 2016.
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