Singapore’s currency weakness is likely to endure amid expectations that its central bank pivots to easing and US tariffs ripple through the global economy.
The Singapore dollar is already near a two-year low against the greenback, and options data show trading of bearish wagers is dominating the market in anticipation of the Monetary Authority of Singapore adjusting its stance. A majority of 17 economists in a Bloomberg survey see a shift in stance at the institution’s upcoming decision on Jan. 24. Others see a move only later this year, which would allow more time to see how Donald Trump retaking the US presidency plays out.
“The MAS’s focus will be on the downside growth risks in 2025, especially with potentially more protectionist US trade policy,” said Jennifer Kusuma, a senior rates strategist at ANZ Group Holdings Ltd. With core inflation set to clock in below its long-term average, “there is scope for the MAS to make a pre-emptive move to reduce the restrictiveness of current policy settings.”
Currencies across Asia have dropped to multiyear lows against the dollar, as investors brace for an inflationary impact from US tariffs and pare expectations for further Federal Reserve easing. The Singapore dollar touched 1.2789, its highest level in a decade, versus the greenback just four months ago — but has weakened steadily since and now sits around 1.37 per dollar.
While the MAS’s parameters for its currency band have stayed the same for more than a year, an abating of price pressures in Singapore has opened the door to a policy shift. Core inflation — which strips out the costs of accommodation and private road transport — has dipped.
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While the MAS doesn’t have an explicit inflation target, it deems a rate of just under 2%, which is close to its historical mean, to be consistent with overall price stability.
Lloyd Chan, a currency strategist at MUFG Bank Ltd. predicts Singapore’s central bank will ease policy this month by slightly reducing the slope of its currency band. Oversea-Chinese Banking Corp. and BNP Paribas SA also expect a January pivot. The French lender sees the currency slipping to 1.40 over the next year.
The MAS uses the Singapore dollar’s nominal effective exchange rate, referred to as S$NEER, as its main monetary policy tool rather than interest rates. It allows the currency to move within a band, adjusting the slope, center or width as needed to alter the pace of appreciation or depreciation. It doesn’t disclose details of the basket, the band nor the pace of appreciation or depreciation — just whether they’ve changed.
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DBS Group Holdings estimates the currency has already dropped to the midpoint of MAS’s band and will slip to 1.39 by midyear. Goldman Sachs Group Inc. sees it at 1.38 on a six-month horizon, while both MUFG and Malayan Banking Bhd. predict it will touch that mark in the first quarter.
Barclays Plc expects the MAS to adjust S$NEER this month, putting the Singapore dollar at 1.39 by year-end, according to strategist Lemon Zhang.
While the predicted drop in the currency is just a few cents on the dollar, it still stands to reduce returns for investors in the country’s debt market, where sales of local-currency corporate bonds hit an annual record $31.2 billion last year. Foreign borrowers accounted for about one-third of the deal volume in 2024, data compiled by Bloomberg show.
US trade policy also looms large for Singapore and its central bank, as MAS Managing Director Chia Der Jiun noted in November. China is one of Singapore’s largest trading partners, and Barclays estimated in September that the yuan constituted roughly a 10th of the MAS currency basket.
DBS expects MAS to reduce the slope of the policy band only in April.
The dollar-Singapore dollar cross should rise to 1.39 in the second quarter “due to the Fed’s cautious rate cut stance and Trump’s incoming tariffs on Singapore’s trading partners,” said DBS strategist Philip Wee.
