While the US dollar gained against many Asian currencies in the wake of Trump’s election victory in November, the picture has become more nuanced in the past month. Investors have been selling US assets in response to higher-than-expected tariffs while Singapore’s dollar has gained about 2.9% against its American counterpart this year.
“The global outlook has deteriorated significantly,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group who is predicting a shift in the policy slope to 0%. “With core inflation forecast to stay well below its long-term average levels, the MAS is now firmly focused on growth.”
Singapore, which was hit with a 10% tariff, got off relatively lightly compared with China’s 145% rate, but as an export-reliant economy the city-state’s success rests on the health of its trading partners. Prime Minister Lawrence Wong has warned that growth this year will be “significantly impacted” and the city-state could tip into a recession.
As a result, Citigroup Inc. sees a greater chance of “a more aggressive” easing by the MAS on Monday, while still sticking with its “measured” 50 basis-point slope reduction call.
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Another option in the MAS’s toolkit is to recenter its policy band downward, effectively allowing the currency to depreciate. Barclays Plc. is among those who sees a small probability of the MAS reducing the slope as well as re-centring its policy band downward.
What Bloomberg Economics says...
UBS AG estimates the drag on economic growth from tariffs will be greatest for Thailand and Singapore, followed by Malaysia, Indonesia and the Philippines. Citi’s Johanna Chua cited OECD data to estimate almost 7% of Singapore’s GDP is driven by US spending, the second-highest among Southeast Asian countries, as she pointed to downside risks to the city-state’s outlook from America’s new import taxes.
That assessment preceded Trump’s announcement of a 90-day pause on higher tariffs, while raising duties on China.
“Significant global retaliation could mean further downside to these sensitivities,” UBS economists wrote in a note on Monday, predicting a “larger-than-usual” slope reduction to a 0% stance.
The MAS eased in January for the first time in five years, and the case to support the economy has become even stronger following Trump’s tariff and the ensuing global market ructions.
“The question is how much to flatten the slope? The MAS has never gone to zero slope in one fell swoop so it could be somewhat alarming to market watchers,” said Selena Ling, head of research and strategy at Oversea-Chinese Banking Corp. “Given that a lot of external economic and trade uncertainties remain, a gradual and incremental approach may be wise.”
